AKERS BIOSCIENCES, INC.
ANNUAL REPORT AND ACCOUNTS 2013
Akers Biosciences develops, manufactures, and supplies rapid, point of care
screening and testing products designed to bring healthcare information both
rapidly and directly to the consumer or healthcare provider. The Company has
advanced the science of diagnostics while responding to major shifts in healthcare
through the development of several proprietary platform technologies. The
Company's state-of-the-art rapid diagnostic assays can be performed virtually
anywhere in minutes when time is of the essence. The Company has aligned with
major healthcare companies and high volume medical products distributors to
maximize product offerings, and to be a major worldwide competitor in
diagnostics. Additional information on the Company and its products can be found
at www.akersbiosciences.com.
Summaries
Operational Summary
February 2013: ABI's proprietary disposable breath alcohol detectors were granted NF Marque ("NF
Mark") status enabling the breathalysers to be marketed and sold to consumers in and around
France under the brand name CHUBE by ABI's UK based partner (en)10
June 2013: Signed amended License and Supply Agreement with Chubeworkx and (en)10 to expand
marketing and distribution of Chubeworkx "BE CHUBE" breath alcohol program worldwide using
ABI-manufactured breathalysers
June 2013: Chubeworkx purchased 512,820 shares of common stock in ABI for an aggregate $1.6
million
August 2013: ABI announced that it was seeking a listing of the Company's shares on The NASDAQ
Capital Market to raise additional capital via a registered public offering of approximately $15
million of its common stock (see Post Year-End Developments)
December 2013: ABI raised gross proceeds of £490,510 (approximately $800,000) via a private
placement to institutional and other investors in the UK
Financial Summary
2013 revenues increased by 129% to $3.6 million (2012: $1.6 million)
Gross Profit Margin: 47% (2012: 36%)
Net Loss After Tax Benefit reduced to $1.5 million (2012 loss: $2.6 million)
EBITDA: loss $1.2 million (2012 loss: $2.4 million)
Basic & diluted loss per share reduced to $0.96 (2012: $2.24)
Inventory at year end: $1.03 million (2012: $988,000)
Company is debt free
Post Year-End Developments
January 2014: Successfully completed an initial public offering of the Company's stock on The
NASDAQ Capital Market, raising approximately $15 million in gross proceeds in a fully subscribed
offering. Net proceeds are being used for general corporate purposes including working capital,
product development and fulfillment, marketing activities, expansion of internal sales organization,
further development of sales channels, and other capital expenditures. By achieving this financial
stability, the Company can now focus entirely on the execution of its business plan.
March 2014: ABI announced that Raymond F. Akers, Jr. PhD, the Company's co-founder and
Executive Chairman of the Board, would assume the duties of President and CEO effective 28 March
2014, positions previously been held by Thomas A. Nicolette; Mr. Nicolette stepped down from the
Company's Board of Directors on 28 March 2014.
March 2014: ABI announced the appointment of recognized diagnostic industry sales and marketing
expert, Edwin C. Hendrick, as the Executive Vice President, Sales and Marketing.
April 2014: The Company began clinical trials in the USA for its PIFA PLUSS® Chlamydia Assay,
the world's first rapid test for Chlamydia diagnosis using a finger stick blood sample. Regulatory
approvals will be sought in many countries after conclusion of the studies.
May 2014: ABI announced a distribution agreement with Thirty Six Strategies General Trading LLC
("36S"), for the sale of the Company's PIFA PLUSS® Infectious Disease Rapid Assay product line
and Tri-Cholesterol "Check" in Australia, Singapore, the United Arab Emirates and Oman. The three
year exclusive agreement is subject to performance minimum purchase requirements.
May 2014: The Company forged an agreement with Jai Capital LLC (“Jai”), a Nevada company
specializing in market development, distribution, and joint ventures of medical devices in India, to
market several of the Company's rapid tests. Jai is expected to immediately begin marketing the
Company's tests to the Indian military and to potential Indian diagnostic partners.
June 2014: ABI commenced a US sales and distribution relationship with Typenex Medical, LLC
("Typenex") of Chicago, Illinois to accelerate sales of its two signature PIFA® Heparin Tests to
hospitals. Typenex will act as ABI's sales agents marketing directly to potential PIFA® Heparin Test
customers thereby increasing the Company's potential distribution network.
June 2014: The Company announced a distribution agreement for the Company's PIFA Heparin/PF4
and PIFA PLUSS PF4 rapid tests with Medline Industries Inc. ("Medline"), the largest privately held
distributor of healthcare supplies in the United States. Medline, which has a network of 40 distribution
centers in the United States and 1,200 dedicated sales representatives worldwide, is expected to begin
marketing the Company's tests to a large network of hospitals and surgery centers across the United
States immediately
As previously announced on 15 November 2013, since the Company's listing on The NASDAQ
Capital Market, it is stating its final results in US GAAP. Accordingly, these results include a
comparison table to show the effects of the change from IFRS to US GAAP.
Chairman’s Statement
The annual financial results for the Company, in US Dollars, for the year ended 31 December 2013 are
presented within. As noted in the 2012 Annual Report and Accounts, the Board anticipated significant
improvements in 2013. ABI is pleased to report that revenues for the year ended 31 December
2013totaled $3,577,851 - a 129% increase over the same period in 2012. Licensing revenues increased by
1,820% and product revenues improved by 98%. Gross profit margin improved to 47% from 36% in
2012.
The significant increase in MPC product revenues is attributed to our world-wide distribution agreement
with Chubeworkx. During the year ended 31 December 2013, Chubeworkx's CHUBE-branded product
accounted for $1,719,340 of our MPC product revenue and an additional $333,333 in licensing
fees. Additional breath alcohol detector revenue was achieved through sales of ABI's BreathScan
disposable detectors and US private-labeled versions, mostly within the human resources ("HR") testing
sector related to on-the-job safety. Growth in ABI's breath alcohol detection business has and will
continue to be achieved through a shift in strategic focus to the broader consumer-based wellness market,
especially through the Company's global partnership with Chubeworkx. Their "BE CHUBE" program
aggressively pursues a much larger target audience for breathalysers through branding and innovative
social media campaigns that support responsible alcohol consumption.
The CHUBE .05% detector is the only US-manufactured single-use breathalyser to have US FDA-
clearance, the NF Mark granted by France's national reference laboratory, Laboratoire National de
Métrologie et d'Essais ("LNE"), and certification through the Australian AS-3547 standard; only three
non-US manufactured-breathalysers hold these same designations. In March 2013, a 2012 law took effect
in France mandating that motorists traveling throughout France equip their vehicles with two NF Marked
breath alcohol detectors; while in Australia, since 2010, police have full authority to pull drivers over at
any time to administer a breath alcohol test irrespective of driving behavior. CHUBE's European and
Australian campaigns have continued to drive production demand for the Company's breathalysers in
2014, and the imminent launch of the "BE CHUBE" program in the US - an initiative that the Company
will be instrumental in facilitating - is expected to maintain product volume requirements in the current
fiscal year.
In addition to breath alcohol detectors, the Company's MPC Biosensor technology forms the basis of two
products within the broad and emerging multi-billion dollar wellness product category; these offerings
had a soft launch in 2013 and did not make significant contributions to revenue. Since biomarkers related
to various metabolic processes can be measured in breath condensate, ABI has applied its proprietary,
easy-to-use platform for the non-invasive measurement of ketone production that is related to fat-burning
(METRON) and oxidative stress levels indicative of cellular damage, found by scientists to be directly
correlated to the aging process and many serious and life-threatening illnesses, including cancer, diabetes
and cardiovascular disease (VIVO). The Company is currently marketing the products direct to end-users
and is assessing distribution opportunities with network marketing companies in the health and wellness
arena.
to American hospitals
The Company's PIFA Heparin/PF4 and PIFA PLUSS PF4 screening tests are the only FDA-cleared,
single-use assays available
to help quickly rule-out Heparin-Induced
Thrombocytopenia ("HIT"), a life- and limb-threatening complication of treatment with the blood thinner
Heparin, especially in cardiac surgery patients. In late 2012, the Company's dedicated technical sales
account executives began moving away from a direct selling model to one that works in tandem with over
300 sales representatives of ABI's US distribution partners, Cardinal Health ("Cardinal") and Fisher
HealthCare ("Fisher"). This strategy allows ABI to have immediate access to key laboratory and
pathology decision makers in the majority of American cardiac hospitals and trauma centres. This
reorganization and the need to build relationships with distributor representatives hampered 2013
domestic sales growth but set the stage for an enhanced selling effort in 2014. In addition, the PIFA
PLUSS PF4 product line extension was just added to Fisher's product roster in January 2014. These
expansion and relationship-building initiatives have already delivered a measureable increase in product
trials and adoptions in the current fiscal year. International sales of the PIFA Heparin/PF4 Rapid Assay,
especially in China, are expected to ramp up later this year. The Company's exclusive distributor in the
region, Novotek Therapeutics Inc. ("Novotek"), a Beijing-based pharmaceutical and in vitro diagnostic
business development corporation, is working to obtain regulatory clearances to facilitate product sales in
this expansive market. For the current fiscal year, the Company is actively seeking distribution
opportunities in other countries where the availability of rapid HIT-testing options is at a minimum. To
facilitate easier entry into these and other markets, the Company is pursuing certification against the
internationally-recognized quality management system standard, ISO 13485.
Cost of sales for the year ended 31 December 2013 increased by 90% to $1,913,844 compared to the
same period in 2012 ($1,007,951). The rise in cost of sales is attributed to the increased consumption of
raw materials and other manufacturing components, as well as the use of temporary labor and sub-
contractors primarily due to the significant increase in breathalyser production to meet enhanced sales
demand.
Although the total cost of sales increased, ABI's gross profit margin improved significantly to 47% for the
year ended 2013 (36% in 2012). Although the total cost of sales increased, ABI's gross profit margin
improved to 47% for the year ended 2013 as compared to 36% in 2012. The improvement in gross profit
margin was derived from a significant increase in licensing fees ($533,333 in 2013 as compared
to$27,778 in 2012) and an increase in production volume which allowed us to improve efficiency by
producing materials in larger lots, reducing setup, quality assurance testing and other production costs
associated with the manufacturing process.
Sales and marketing expenses in the year ended 31 December 2013 totaled $684,720, which was a 7%
increase as compared to $638,732 for the year ended 2012. The increase was the result of the payment of
royalties related to the improved breathalyser sales. In addition, general and administrative expenses in
the year ended 31 December 2013 totaled $1,524,626, which was a 2% increase as compared
to$1,493,707 for the year ended 2012. Research and development expenses in the year ended 31
December 2013 totaled $1,006,800, which was an 11% increase as compared to $900,380 for the year
ended 2012. This increase was due to expanded development of the PIFA Heparin/PF4 Rapid Assay
products and the METRON single-use ketone test for the health & wellness industries.
ABI's net loss after tax benefit for 2013 is $1,526,773, which is a 40% improvement over the same period
last year (2012 loss: $2,557,820). Basic and diluted loss per share, adjusted for the 1-for-156 reverse stock
split effected in November 2013 is $0.96 (2012 loss: $2.24). The total value of inventory held by the
Company at 31 December 2013 was $1,025,104 (2012: $987,853); the increase in comparison to the same
period in the prior year is due to inventories that have been built-to-order for Chubeworkx pending final
delivery instructions. Cash at 31 December 2013 was $103,634. The Company remains debt-free.
The NASDAQ Capital Market IPO
On 8 August 2013, ABI announced that it was seeking a listing of the Company's shares on
The NASDAQ Capital Market ("NASDAQ") to raise additional capital via a registered public offering of
approximately $15 million of its common stock. Substantial resources were dedicated in the second half
of 2013 to this event which culminated in the closing of a fully subscribed offering on 28 January
2014 and the admission of ABI's shares to trading on NASDAQ under the symbol "AKER." The
Company received approximately $15 million in gross proceeds, before underwriting discounts,
commissions and offering expenses. The Company is using the net proceeds for general corporate
purposes, including working capital, product development and fulfillment, marketing activities, expansion
of internal sales organization, further development of sales channels, and other capital expenditures. By
achieving this financial stability, the Company can now focus entirely on the execution of its business
plan.
In anticipation of the NASDAQ IPO, on 3 December 2013 Mr. Thomas J. Knox, shareholder and member
of the ABI Board, converted all 10,000,000 shares of his Series A Preferred Stock into 261,997 shares of
common stock pursuant to the terms of the Series A Preferred Stock.
On 22 November 2013 the Company effected a 1-for-156 reverse stock split.
Outlook
As a result of improved revenue performance in 2013 and the successful NASDAQ IPO that was
announced on 23 January 2014, the Company has financial stability and, with that, the
opportunity to exclusively focus on the execution of its well-defined business plan. This plan
involves expanding sales of ABI's PIFA Heparin/PF4 assays by introducing these FDA-cleared,
rapid tests into various international markets and pursuing a more aggressive stance in the US by
strengthening our selling network. In addition, resources are also being dedicated to a
comprehensive US launch of a number of products derived from our breath condensate MPC
Biosensor technology, namely CHUBE breathalysers, and a growing wellness product roster that
includes METRON and VIVO. The next phase of our corporate strategy is also dedicated to the
rapid commercialization of our near-term products which include the Company's PIFA-based
infectious disease single-use Malaria and Chlamydia assays which are in-demand in the
Developing World. Finally, the Company will continue work on its clinical development
program to support the regulatory approval process of two additional MPC Biosensor products,
Breath Ketone "Check" for diabetic screenings for ketoacidosis and the Breath PulmoHealth
"Check" suite of products for Asthma, Chronic Obstructive Pulmonary Disease (COPD) and
Lung Cancer. The Company is optimistic about its prospects as it enters a new phase in its
development, and appreciates the ongoing support of its strategic initiatives by its shareholders.
/s/ Raymond Akers Jr.
Raymond F. Akers, Jr. PhD, Executive Chairman of the Board
26 June 2014
Company Information At-A-Glance
Transfer Agents
United States
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United Kingdom
Capita Registrars
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UNITED KINGDOM
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Ticker Symbols
AKER NASDAQ Capital
Market
AKR AIM LSE
Corporate Offices
201 Grove Road
Thorofare, New Jersey 08086
USA
1.800.451.TEST (8378)
+ 1 856.848.8698
www.akersbiosciences.com
Email:
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Fiscal Year Ended: December 31, 2013
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE
ACT OF 1934
AKERS BIOSCIENCES, INC.
(Exact name of registrant as specified in its charter)
New Jersey
(State or other jurisdiction of
incorporation or organization)
(Commission File Number)
22-2983783
(I.R.S. Employer Identification
Number)
201 Grove Road
Thorofare, New Jersey USA 08086
(Address of principal executive offices, including zip code)
(856) 848-8698
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 the Securities Act.
Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing requirements for the last 90 days.
Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form
10-K. Yes No
1
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated Filer
Non-Accelerated Filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No
Issuer’s revenues for its most recent fiscal year were approximately $3,600,000.
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on
June 30, 2013, based on a closing price of $2.50 was approximately $4,479,420. As of March 25, 2014, the
registrant had 4,894,837 shares of its common stock, no par value per share, outstanding.
Documents Incorporated By Reference: None.
2
AKERS BIOSCIENCES, INC.
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2013
TABLE OF CONTENTS
PART I
Item 1. Business.
Item 1A. Risk Factors.
Item 1B. Unresolved Staff Comments.
Item 2. Properties.
Item 3. Legal Proceedings.
Item 4. Mine Safety Disclosures.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Item 6. Selected Financial Data.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results Of Operations.
Item 7A. Quantitative And Qualitative Disclosures About Market Risk.
Item 8. Financial Statements and Supplementary Data.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Item 9B. Other Information.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Item 14. Principal Accounting Fees and Services.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
Page
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FORWARD LOOKING STATEMENTS
Included in this Form 10-K are “forward-looking” statements, as well as historical information. Although we believe
that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the
expectations reflected in these forward-looking statements will prove to be correct. Our actual results could differ
materially from those anticipated in forward-looking statements as a result of certain factors, including matters
described in the section titled “Risk Factors.” Forward-looking statements include those that use forward-looking
terminology, such as the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “project,” “plan,”
“will,” “shall,” “should,” and similar expressions, including when used in the negative. Although we believe that the
expectations reflected in these forward-looking statements are reasonable and achievable, these statements involve
risks and uncertainties and we cannot assure you that actual results will be consistent with these forward-looking
statements. We undertake no obligation to update or revise these forward-looking statements, whether to reflect
events or circumstances after the date initially filed or published, to reflect the occurrence of unanticipated events or
otherwise.
Item 1. Business.
Overview
PART I
Akers Biosciences, Inc. (“ABI,” “we” or the “Company”) develops, manufactures, and supplies rapid, point-of-care
screening and testing products designed to bring health-related information directly to the patient or clinician in a
time- and cost-efficient manner. ABI believes it has advanced the science of diagnostics through the development of
several proprietary platform technologies that provide product development flexibility.
All of ABI’s rapid, single-use tests are performed in vitro (outside the body) and are designed to enhance patient
well-being and reduce total outcome costs of healthcare. The Company’s current product offerings and pipeline
products focus on delivering diagnostic assistance in a wide variety of healthcare fields/specialties, including
cardiology/emergency medicine, metabolism/nutrition, neuropsychiatry, oncology and infectious diseases detection,
as well as for on- and off-the-job alcohol safety initiatives.
ABI believes that low-cost, unit-use testing not only saves time and money, but allows for more frequent, near-
patient testing which may save lives. We believe that ABI’s FDA-cleared rapid diagnostic tests that help facilitate
targeted diagnoses and real-time treatment. We also believe that ABI’s rapid diagnostic tests surpass most other
current diagnostic products with their flexibility, speed, ease-of-use, readability, low cost and accuracy. In minutes,
detection of disease states and medical conditions can be performed 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:
• cost pressures/efficiency of healthcare delivery;
• need for tools for pharmaceutical companies to monitor side effects of medicines/new agents in development;
• need for easy to use, accurate at-home tests for individuals to monitor their personal health and wellness;
• need for affordable mass screening tests for key infectious diseases, cardiac conditions, and metabolic
markers; and
• public health needs in developing countries lacking basic health infrastructure.
4
Market Overview
Worldwide, healthcare professionals use laboratory tests to support their clinical diagnosis and treatment decisions.
According to a MarketsandMarkets report, In-Vitro Diagnostic (IVD) Market (Applications, End-users & Types)
Trends & Global Forecasts (Major & Emerging Markets — G7, Japan & BRIC) (2011 – 2016), published in
January 2012 (the “IVD Market Report”), the use of such tests continues to grow as a result of increased patient
awareness, patient self-testing, and increasing baby booming population across the globe. Other major drivers for
the growth of the in vitro diagnostic (“IVD”) industry is a rise in the number of diseases like respiratory and
hospital-acquired infections and a rise in the chronic diseases such as diabetes, hypertension, cardiovascular
diseases, and cancer. Both an increasing understanding of the molecular processes underlying many disease states
and the opportunity for clinicians to quickly incorporate that targeted information into treatment decisions (e.g.
companion testing). According to an article published on in vitro diagnostics by Medical Device and Diagnostic
Industry (“MDDI”) online in March 2013, in the past, the in vitro diagnostics industry has focused on developing
tests that require significant time, skill, and often costly, specialized equipment. Patient specimens often had to be
collected remotely and processed in a central laboratory with test results sent to a physician at a later date. This
general protocol is not particularly well-adapted to the practice of medicine in a cost-effective, timely manner. The
pressures on public health budgets and falling profits among third party payors such as insurers, necessitates an
alternative approach to disease management. Moreover, the implementation of “Obamacare” in the United States
mandates that tens of millions of additional people receive cost-effective healthcare. This reality has changed the
American healthcare landscape as evidenced by the steady growth of the retail health clinic and urgent care centers
market.
According to the IVD Market Report, outside of the United States, socialized medicine and/or a general atmosphere
of cost-containment and healthcare efficiency drive the need for diagnostic testing solutions that are fast, affordable,
accurate, simple-to-perform and help enable early diagnosis and treatment of medical conditions or provide an
assessment of a person’s health status.
ABI designed its products based on single-use assay platforms with straightforward test procedures that can be
completed in minutes. In the healthcare setting, the Company’s clinical laboratory products can be utilized near or at
the point-of-care and do not require the use of expensive equipment or a highly trained or specialized staff. As a
result, an individual’s current health status can immediately be incorporated into diagnostic and treatment decisions,
improving the overall efficiency of the healthcare experience in the eyes of the patient, and ultimately the payor. In
addition, in the developing world, the portability and ease-of-use of such point-of-care tests can serve to drastically
improve the level of disease screening and subsequent patient care. We believe the benefits of our technology
platforms are therefore well-suited to the diagnostic demands of third world countries that seek to deliver modern
medical diagnosis in the midst of primitive infrastructures. In addition, some of our products have received FDA
clearance for over-the-counter use and others that do not fall within the oversight of regulatory authorities have the
added benefit of being self-tests that deliver personal health information on-demand. ABI believes that the products
that emerge from ABI’s technology platforms address the needs of the evolving healthcare delivery system that is
moving patient care closer to or in the home.
In a June 6, 2013 article “Global In Vitro Diagnostics Markets Outpace Pharma Industry Growth” by Frost &
Sullivan’s estimated the global IVD market was $45 billion, with forecasted revenue expected to reach $64 billion in
2017. While the U.S. and Western Europe are the largest IVD markets, the Asian-Pacific region and Eastern Europe
are projected to be the fastest growing by Frost & Sullivan’s. The Company’s main presence is in the United States,
but recently executed distribution and licensing agreements have initiated ABI’s strategic move to the China and
European Union marketplaces.
Strategy
ABI’s strategy is to target carefully chosen, high margin market segments within the diagnostics industry where
existing tests do not effectively fulfill clinical requirements, or an emerging, unfulfilled need has been identified.
The Company seeks to develop tests for applications based on their ability to compliment a particular treatment,
lifestyle or testing regimen that requires a time- and cost-efficient diagnostic alternative or solution. ABI utilizes its
existing platform technologies to internally develop its new products as the Company’s proprietary methods.
5
ABI has established and will continue to pursue distribution relationships with high volume, medical and health &
wellness product marketers to maximize its revenue potential, and to be a worldwide competitor in specialized
markets within the diagnostics industry.
ABI has developed and continues to develop key strategic relationships with established companies with well-
trained technical sales forces and strong distribution networks in the following key market segments:
• Clinical Laboratories;
• Physicians’ Office/Retail and Urgent Care Clinics;
• Nutraceutical Suppliers; and
• Military/Government.
The Company plans to target other attractive markets such as aid organizations with purchasing power for rapid
infectious disease tests and other biotechnology companies or pharmaceutical manufacturers that may require
companion tests to promote patient compliance with a medication regimen or facilitate initial screenings to qualify
patients for a particular therapy.
Technology Overview
ABI’s proprietary platform technologies merge scientific innovation with user-friendly formats to deliver cost-
effective and time-efficient testing and sample preparation solutions where and when they are needed.
Testing Platform Technologies
MPC Biosensor Technology
MicroParticle Catalyzed Biosensor (“MPC Biosensor”) Technology permits the rapid identification of medical
conditions through biomarkers in exhaled breath. These products contain microparticles that change color when a
subject has a positive test result. The microparticles are coated with recently discovered agents that both decrease
the time to result and provide a more defined color change when appropriate. MPC Biosensor-based products are
packaged in small, disposable tubes through which test subjects can easily blow for several seconds. In the United
States, the MPC Biosensor Technology is protected by two United States patents (7,285,246; 7,837,936), covering
all MPC Biosensor products such as CHUBE, VIVO and the “Breath PulmoHealth “Check” suite of products.
Breath Ketone “Check” has one US and three International patent applications pending. In addition, ABI also holds
three US, three Australian and three European Community Design patents for Color Comparison Card technology
that users can utilize to interpret detector results.
Particle ImmunoFiltration Assay (PIFA®) 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,
serum, urine or saliva) within a self-contained device. If a patient tests positive for the antibody or antigen, a binding
event will occur and the dyed microparticles will be trapped by a filter within the device. As a result, the test
window will be void of any color. Conversely, if the patient tests negative, the dyed microparticles will flow freely
into the test window. ABI’s PIFA® Technology is currently protected by two United States patents (5,565,366;
5,827,749) covering all PIFA tests such as Heparin, Malaria and Chlamydia. Specific to the PIFA Heparin tests, the
Company has one international Patent (JP 4,931,821) granted in force, and three patent applications pending (one
US and two international).
SMC Technology
Synthetic Macrocycle Complex (“SMC”) Technology is a colorimetric testing methodology that pairs a proprietary
reagent (a substance or mixture for use in chemical analysis or other reactions) with a hand-held, photometric
6
reader that determines the quantitative level of a therapeutic drug in a patient’s blood sample. The technology also
permits the use of whole blood samples collected from a simple finger stick, making products that use this
technology extremely flexible within the healthcare delivery system.
Rapid Enzymatic Assay
Rapid Enzymatic Assay (“REA”) technology enables the rapid detection of metabolites in blood and urine in assay
formats that are easy-to-use and deliver quantitative or semi-quantitative results. Products that employ REA
technology are primarily intended for pharmaceutical, nutritional and over-the-counter (OTC) markets. ABI has two
United States patents (8,003,061; 8,425,859) for this technology covering our Tri-Cholesterol “Check” test, along
with one US patent application pending.
minDNATM Technology
minDNATM technology facilitates the analysis of DNA, in one minute, by a hand-held photometric reader. A
mixture consisting of a patient’s whole blood specimen and a disposable reagent is exposed to the minDNAnalyzer,
a digital hand-held reflectance photometer. These assays can be utilized at the point of care setting by non-clinical
laboratory personnel using finger stick blood samples, or in the laboratory using EDTA whole blood specimens
obtained through venous blood draws. This technology can be applied to the development of rapid white blood cell
count and absolute neutrophil count assays that can monitor side effects of certain psychiatric and oncology drugs.
Sample Preparation Technology
Rapid Blood Cell Separation Technology
ABI’s Rapid Blood Cell Separation (“Separator”) Technology, 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. Conventional methods of blood cell separation are labor-intensive and time-consuming, typically
involving blood collection and laboratory personnel, as well as electrically-powered centrifuges and other
specialized equipment. The disposable Separator device requires only a small-volume blood sample obtained from a
time- and cost-efficient finger stick procedure or through a venous blood draw. ABI 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, and will be utilized in the infectious disease products currently under development. The
seraSTAT® Rapid Blood Cell Separation Technology is currently protected by two United States patents
(7,896,167; 8,097,171) and one international patent (JP 4,885,134), with two additional international patent
applications pending.
Product Portfolio
ABI is positioned as a provider of rapid diagnostic solutions that encompass the totality of the point-of-care testing
process, from sample preparation to immediate test result. In addition, we believe we are a pioneer in disposable
breath condensate technology, a testing format that has significant potential given the variety of wellness- and
disease-predicting biomarkers present in an exhaled breath sample.
At present, ABI’s commercialized and emerging product portfolio incorporate four of the Company’s six proprietary
platform testing technologies: PIFA®, MPC Biosensor, REA and Rapid Blood Cell Separation Technology. Directly
below, is a discussion of the products within our current and emerging portfolio that will be segmented by platform.
ABI designed its products based on single-use assay platforms with straightforward test procedures that can be
completed in minutes. In the U.S. some of the Company’s clinical laboratory products and those with medical
intended uses generally require “prescription use” Federal Drug Administration (“FDA”) 510(k) clearance prior to
product marketing given that they will be ordered or used by medical practitioners in the course of his or her
professional practice. Despite this categorization, ABI’s professional use products are still designed for ease of use,
can be utilized near or at the point-of-care, and do not require the use of expensive equipment or a highly trained or
specialized staff. As a result, an individual’s current health status can rapidly be incorporated into diagnostic and
treatment decisions, improving the overall efficiency of the healthcare experience in the eyes of the patient, and
ultimately the payor. In addition, in the developing world, the portability and ease-of-use of such point-of-care tests
can serve to drastically improve the level of disease screening and subsequent patient care. We believe the benefits
7
of our technology platforms are therefore well-suited to the diagnostic demands of countries in the developing world
that seek to deliver modern medical diagnosis in the midst of primitive infrastructures. In addition, some of our
products have received FDA 510(k) clearance for over-the-counter (“OTC”) use. Other self-tests deliver personal
health information of a non-medical nature, on-demand, and are not FDA regulated; these products are still
manufactured in compliance with a quality management system (“QMS-Compliant”). ABI believes that all its
technology platforms and products address the needs of the evolving healthcare delivery system that is moving
patient care closer to or in the home.
The following table sets forth our marketed and current pipeline products, indentifies the appropriate “prescription
use” or “OTC” designation and whether the required clearance has been obtained or is still needed prior to product
marketing.
Our marketed and emerging products include:
Product
BreathScan®/CHUBETM
Platform Market/Pipeline
Marketed
MPC
Not FDA-
regulated;
QMS-
Compliant
Only
FDA
Clearance
Required
Prescription
Use/OTC
OTC
FDA Clearance
Status
Obtained
Obtained/Needed Description
BreathScan® PRO
MPC
Marketed
OTC
Obtained
Breath Ketone
“Check”®
MPC
Pipeline
Prescription
Use
Needed
METRON ®
MPC
Marketed
X
Breath PulmoHealth
“Check”®
MPC
Pipeline
Prescription
Use
Needed
VIVO
MPC
Marketed
X
8
Disposable breath
alcohol detector
Quantitative
breath alcohol
detection system
Disposable breath
ketone device for
diabetic
monitoring and
management of
senile dementia
and Alzheimers
disease patients
Disposable breath
ketone device to
monitor weight
loss
A suite of breath
tests for
biomarkers
indicating asthma,
chronic
obstructive
pulmonary
disease (COPD),
and lung cancer
Non-invasive,
quantitative
measurement of
biological
markers for
oxidative stress
that relates to
cellular damage
Not
FDA-
regulated;
QMS-
Compliant
Only
FDA
Clearance
Required
Prescription
Use/OTC
FDA Clearance
Status
Obtained/Needed
Product
PIFA® Heparin/PF4
&
PIFA PLUSS® PF4
Platform Market/Pipeline
PIFA
Marketed
Prescription
Use
Obtained
PIFA PLUSS®
Infectious Diseases
PIFA
Pipeline
Prescription
Use
Needed
seraSTAT®
seraStat
Marketed
Prescription
Use
Obtained
Tri-Cholesterol
“Check”®
REA
Marketed
OTC
Obtained
Description
Rapid tests for
Heparin/PF4
antibodies to detect
an allergy to the
widely used blood
thinner, Heparin
Rapid tests for a
variety of infectious
diseases, especially
those that are
prevalent outside of
the United States
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.
Rapid test for Total
and high density
lipoprotein
cholesterol and
estimates low
density lipo protein
MPC Biosensor Technology
The Company’s MPC Biosensor breath condensate testing platform forms the basis of a number of ABI’s marketed
and pipeline products.
Breath Alcohol Franchise
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 US consumers; CE
certification is not required to market the product in the EU given that BreathScan® results are not used to diagnose
any medical conditions. However, Chubeworkx and its indirect subsidiary (en)10 Global Limited (“en10”), in
partnership with the Company, received certification under the French Standard, NF X 20-702 which defines the
specifications that chemical breath alcohol detectors must meet in order to be sold to consumers in France. In March
2013, a 2012 law mandating most motorists driving in France to equip their vehicles with two, “NF-Marked” breath
alcohol detectors took effect. As a result, the Company’s breathalyzers, under the Chubeworkx private label brand,
CHUBE, can now be marketed to the approximately 34 million French nationals who own motorized vehicles and a
9
portion of the estimated 81 million foreign visitors entering France annually by automobile. In fact it is estimated
that at least 1.6 million cars, motorcycles and recreational vehicles are transported on the Eurotunnel train through
the Channel Tunnel each year between England and France, while more vehicles make the same trip via ferry via the
English Channel waterway. In addition, the Company’s breath alcohol detector technology has been granted
Australian Standard certification trademark, which cleared the commercial pathway for product sales in Australia,
New Zealand, and South Africa that view certification as a requirement for market entrance through its distribution
relations with Chubeworkx and en10. Chubeworkx sales and marketing initiatives also currently extend into the UK.
On June 13, 2013, the Company announced that it was extending the Chubeworkx License and Supply Agreement to
allow the marketing and distribution of the “BE CHUBE” program and its related product in North America to
facilitate a worldwide sales and marketing initiative.
The Company’s disposable breath alcohol detectors are available in .02%, .04%, .05% and .08% blood alcohol
concentrations (“BACs”) and provide users with a test result in two minutes. If the crystals in the interior of the
device change from yellow to aqua, the user has tested positive for the specific alcohol level. Should the crystals
remain yellow, the result is negative.
The Company’s proprietary breath alcohol detection technology is paired with the quantitative precision of an
electronic analyzer in the BreathScan® PRO alcohol detection system. As with all BreathScan® products, the test
subject exhales into a specially calibrated, BreathScan® PRO detector. The testing coordinator then inserts the used
detector into the BreathScan® PRO Digital Analyzer. After two minutes, the Analyzer’s sophisticated optics
calculate the subject’s BAC; the detectable range spans from 0.00% to 1.50% BAC. Unlike other electronic
breathalyzers, BreathScan® PRO never requires recalibration so it is in “ready” mode at all times. In 2011, the
Company received FDA over-the-counter clearance for the system, providing a commercialization path in the US
for use by trained professionals, including those in civil and military law enforcement, and the general public; in
addition, the CE-Mark was affixed to the alcohol detection system for professional use. Unlike the aforementioned
BreathScan® disposable detectors, BreathScan® PRO is required to have a CE-Mark as the system includes an
electronic component, namely the digital analyzer. ABI’s distribution relationship with Chubeworkx also is expected
to encompass a private-labeled version of BreathScan® PRO within its global distribution plan.
Since the appropriate regulatory clearances have been obtained in the United States and other major markets
requiring specific certifications for specific devices (i.e. France and Australia for the Company’s single-use
detectors for these products), the Company does not anticipate needing to fund additional clinical trials to facilitate
or initiate product marketing in other international regions thus far.
Other Emerging MPC Platform Products
The Company’s MPC Biosensor technology is being applied to the development of products that serve the
nutraceutical and weight loss marketplaces. As a category, these disposable screening tests are exempt from FDA
510(k) premarket clearances. Biomarkers related to various metabolic processes can be measured in breath
condensate. As a result, ABI has used its proprietary, easy-to-use platform to design disposable breath tubes that
measure ketone (acid) production associated with fat-burning (METRON®) and oxidative stress levels that relate to
cellular damage and the development of many preventable diseases (VIVOTM). Initial marketing activities have
commenced for these products and they are heading toward full commercialization; the Company is currently
assessing distribution opportunities with companies specializing in weight loss and/or mass distribution through
health-related multilevel marketing organizations. Since devices with claims related to weight loss or nutrition are
exempt from FDA oversight, a clinical program to support 510(k) submission is not required for either of these
products. Given the non-medical intended use, the Company does not believe products will be required to hold a
CE-mark prior to marketing in the EU.
ABI is continuing its clinical development of the Breath Ketone “Check” disposable breath tube for two clinical
indications: (i) the diagnosis of ketoacidosis in diabetics, and (ii) the management of senile dementia and
Alzheimer’s disease patients.
Breath Ketone “Check’ is being designed to provide real-time information that allows diabetics to determine if they
have a more severe level of ketone (acid) build up in their body that can cause a life-threatening medical emergency
called ketoacidosis. The estimated 28.5 million Type I (insulin-dependent) diabetics worldwide are at particular risk
for ketoacidosis and require routine monitoring of their ketone levels. To date the medical industry relies on blood-
10
and urine-based ketone testing methods, which are invasive and/or inconvenient. Since breath and blood ketone
levels are closely correlated, the Breath Ketone “Check” is designed to offer healthcare professionals and their
patients a convenient, accurate method, which can be completed anytime, anywhere, to quickly determine if an
individual’s ketone level is approaching a dangerous threshold requiring medical attention. Since this product
requires FDA 510(k) clearance, the Company continues to develop its technical file and complete required clinical
studies to complete the regulatory submission.
An additional clinical indication for the Breath Ketone “Check” test is as an aid in the management of senile
dementia and Alzheimer’s disease. There is no known cure for these neurological conditions, which slowly progress
over years to decrease cognitive function. Moreover, the cost to the healthcare system to provide care for these
patients is significant. However, recent advances in neuroscience indicate that these diseases can be greatly slowed,
and in some cases the progression can stop, if the patient is maintained in a state of ketosis. Ketosis results from a
diet low in carbohydrates that promotes the production of ketones in the bloodstream, and is a milder form of
ketoacidosis. Because these patients are often confused or unreliable, it is important to ensure that they maintain a
state of ketosis to keep the disease in check. This can be accomplished through routine monitoring with Breath
Ketone “Check”.
ABI is also putting research and development resources to the development of Breath PulmoHealth “Check” suite of
assays. These disposable detectors are being designed to signal the detection of various biomarkers related to
pulmonary health, namely asthma, chronic obstructive pulmonary disease (“COPD”) and lung cancer, through
convenient, rapid analysis of an individual’s breath sample. ABI has chosen to target this trio of conditions as their
impact on global health is staggering:
• over 300 million people worldwide are living with asthma and up to 18% of a country’s population are
undiagnosed asthmatics;
• 210 million individuals are being treated for COPD but each of the 1 billion smokers is at risk for the disease;
and
• more than 1.6 million people worldwide receive the diagnosis of lung cancer annually with many more
victims expected as 80% of all lung cancers can be attributed to smoking.
ABI believes these statistics suggest that pulmonary conditions are under-diagnosed and under-treated and will
continue to pose a chronic strain on worldwide public health. Currently, diagnostic methods used for the detection of
lung-related diseases and illnesses are often costly as specialized medical personnel must facilitate analysis and
testing, and radiologic exams or invasive surgical procedures may be required. While ABI does not presume Breath
PulmoHealth “Check” products to be replacements for such tests in all markets, it does however have ambitions for
the devices to become effective, highly cost-efficient, primary screening tools. Their ease-of-use, portability and
non-invasive nature provide healthcare professionals and public health officials with a testing platform that can be
deployed in high volume, and even in regions of the developing world. At present, the Company’s primary
development efforts are focused on configuring the clinical dossier for the asthma product.
The Breath Ketone “Check” and the Breath PulmoHealth “Check” suite of products will require the development of
individual clinical trial programs to facilitate eventual FDA 510(k) submissions. The Company has self-certified an
earlier version of the Breath Ketone “Check” as being in compliance with CE requirements in the EU, and intends to
pursue the same designation for the emerging version, as well as for each product in the Breath PulmoHealth
“Check” trio once the appropriate technical file is assembled.
MPC Biosensor technology is currently protected by two United States patents (7,285,246; 7,837,936).
PIFA® Technology
The core products marketed under the PIFA® platform are the PIFA® Heparin/PF4 Rapid Assay, PIFA PLUSS®
PF4, and a variety of rapid Infectious Disease screening tests which target markets in the developing world.
11
PIFA® Heparin/PF4 Rapid Assay and PIFA PLUSS® PF4 remain the only FDA-cleared rapid manual assays that
quickly determines 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. According to “Current Concepts Review: Heparin-Induced
Thrombocytopenia”, published by Foot and Ankle International in 2008 (the “HIT Report”), patients with HIT are at
risk of developing limb- and life-threatening complications, so the timely test result provided by ABI’s Heparin/PF4
devices, is paramount to effective, clinical decision making. In the US alone, approximately 12 million patients are
exposed to Heparin annually and 1% to 5% of those patients receive a HIT diagnosis. The largest at-risk populations
are patients undergoing major cardiac or orthopedic surgical procedures. It is estimated that up to 50% of cardiac
surgery patients develop HIT-antibodies. Given the size of the aging baby boomer market segment and the
prevalence of cardiac disease, surgeries within this category is expected to increase, as would the potential demand
for the Company’s convenient, rapid tests.
The PIFA® Heparin/PF4 Rapid Assay was fully commercialized in the U.S. in 2008, improving the standard of care
in HIT-testing with its result delivered in less than ten minutes after the patient sample has been prepared.
Traditional methods required the use of expensive equipment, specialized laboratory personnel and approximately 4
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. In November 2012, the Company 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 ABI’s 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, the Company
does not anticipate needing to fund additional clinical trials to facilitate product marketing domestically. In addition,
the current technical file that has been assembled for seraSTAT® and PIFA PLUSS PF4® will also be used to
support ABI’s CE-marking self-certification process to initiate product sales in the EU; the PIFA Heparin/PF4 Rapid
Assay is already CE-marked. The Company’s strategy in foreign jurisdictions that may require additional clinical
trials to support regulatory clearance, as is the case in China, is to partner with a distributor that will fund the
required clinical program in exchange for some degree of marketing exclusivity.
Other PIFA® Platform Assays in development
According to the Center for Disease Control and Prevention, “Emerging Infectious Diseases: a 10-Year Perspective
from the National Institute of Allergy and Infectious Diseases, volume 11, Number 4 — April 2005, infectious
diseases account for more than 15 million deaths annually. That equates to one in every two deaths in developing
countries. Given that greater than 80% of the world’s population lives in the 100-plus developing countries, the need
for infectious disease screening tests and effective treatment options has global implications. The expansive
geographies combined with underdeveloped, underfunded healthcare infrastructures make rapid, single-use, portable
devices that do not require special instrumentation, key to any infectious disease-containment solution.
ABI’s PIFA® technology provides a testing format that meets the aforementioned criteria. The Company can
quickly apply the PIFA PLUSS® methodology to its infectious disease testing products to further consolidate the
test result turn-around time and eliminate the need for any specialized sample preparation personnel or equipment
which are usually not at the disposal of healthcare professionals in remote locations. To date, the Company’s custom
reagent work has focused on a variety of infectious diseases, especially those that are prevalent outside of the United
States including the following:
12
• Chagas Disease
• Chlamydia
• Cytomegalovirus
• Dengue Fever
• Hepatitis B Surface Antigen
• Hepatitis C
• Human Immunodeficiency Virus (HIV 1+2)
•
Infectious Mononucleosis
• Lyme Disease
• Malaria
• Syphilis
In addition, PIFA technology has been applied to a rapid blood typing card used to assess donor-patient blood
grouping compatibility in minutes, to help facilitate fresh whole blood transfusions in triage situations. The
“Battlefield Blood Transfusion Card” is designed to enhance combat casualty care or provide remote healthcare
facilities in underdeveloped countries with critical patient-donor information, especially when blood requirements
outpace blood supplies. As with the Company’s Infectious Disease products, current business activities will focus on
opportunities in international markets. As such, clinical trials to support FDA 510(k) clearances or CE self-
certification will not be required. The Company intends to determine the clinical data needed to market products
specifically within the developing world, once it completes the assessment of distribution options within the region.
PIFA® technology is currently protected by two United States patents (5,565,366; 5,827,749) and one international
patent (JP 4,931,821 – Heparin Tests).
REA Technology
ABI’s Tri-Cholesterol “Check” test is initiated with an easy-to-obtain finger stick blood sample, and provides users
with an estimate of both their Total and high density lipoprotein (“HDL”) cholesterol levels, and by a simple
calculation, approximates their low density lipoprotein (“LDL”) level. We believe that there is global demand for
this category of disposable tests given healthcare trends that identify cardiovascular disease, and related risk factors
like high cholesterol, diabetes and high blood pressure. These complications are particularly on the rise in
developing nations that have gained accessed to the dietary habits of the west. In fact, studies reported by Middle
East Health Magazine recently conducted in various medical centers throughout Saudi Arabia and the United Arab
Emirates (“UAE”) categorized the cardiovascular health risk as being on the edge of a potentially serious epidemic.
In addition, the research revealed that half the subjects were undiagnosed prior to participating in the study that may
be indicative of insufficient healthcare resources. This regional case study has global application as cardiovascular
disease is the leading cause of death worldwide and access to healthcare remains a challenge to much of the
aggregate population. This drives home the need for rapid, straightforward screening tests that are easily accessible
to individuals for routine monitoring.
Tri-Cholesterol “Check” has the appropriate U.S. FDA market clearances and is also CE-marked for sale in the
European Union for professional use. At present, the Company’s Tri-Cholesterol “Check” business strategy is to
focus on distribution activities in countries within the developing world. Once ABI completes an assessment of
opportunities within the region, it intends to determine if additional clinical data outside of the robust technical file
assembled to support FDA-clearance and CE-certification will be required for product marketing.
The REA Technology is currently protected by two United States patents (8,003,061; 8,425,859).
13
Sample Preparation Technology
Rapid Blood Cell Separation Technology
In addition to the Company’s testing platforms, ABI’s recently patented Rapid Blood Cell Separation (“Separator”)
Technology, 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. Conventional methods of blood cell
separation are labor-intensive and time-consuming, typically involving blood collection and laboratory personnel, as
well as electrically-powered centrifuges and other specialized equipment. The Separator device requires only a
small-volume blood sample obtained from a time- and cost-efficient finger stick procedure.
The required micro-volume specimen of serum or plasma is immediately extracted and introduced into a rapid assay
device for real-time analysis. The savings afforded by the Separator device can be measured in time and cost given
its quick turn-around-time and straightforward, easy-to-master procedure.
Since the appropriate regulatory clearances have been obtained in the United States for seraSTAT® as a stand-alone
device, the Company does not anticipate needing to fund additional clinical trials to expand product marketing
domestically. seraSTAT® is currently integrated into PIFA PLUSS PF4 devices, and will be utilized in the
infectious disease products currently under development. ABI may consider partnerships with other medical device
companies, functioning as an Original Equipment Manufacturer (“OEM”), as the benefits of the seraSTAT® Rapid
Blood Cell Separation Technology can be integrated into other assay platforms. Also, the current technical file that
has been assembled for seraSTAT® will be used to support ABI’s CE-marking self-certification process to initiate
product sales in the EU. The Company’s strategy in foreign jurisdictions that may require additional clinical trials to
support regulatory clearance is to partner with a distributor that will fund the required clinical program in exchange
for some degree of marketing exclusivity.
The seraSTAT® Rapid Blood Cell Separation Technologyis currently protected by two United States patents
(7,896,167; 8,097,171) and one international patent (JP 4,885,134).
Competition
Competitors of ABI include other companies developing and marketing rapid, point-of-care diagnostic devices and
companies with dedicated laboratory instruments and/or automated test systems. We face intense competition from
companies with dominant market positions within the in vitro diagnostic testing market such as Abbott, ACON
Laboratories, Inc., Alere, Diagnostica Stago, SA., Immucor, Inc., OraSure Technologies, Inc., and Quidel
Corporation.
The Company believes the primary criteria for determining competitiveness within the rapid point-of-care sector are
cost, ease-of-use, speed, readability, accuracy and flexibility. The time required by ABI to develop a working
prototype test ready for clinical trials typically ranges from around eight to twelve weeks from inception. We believe
that competitors’ laboratory tests normally require at least a year to develop to a similar point.
However, our competitors have significantly greater financial, technical, marketing and other resources than we
have and may be better able to:
•
•
•
respond to new technologies or technical standards;
react to changing customer requirements and expectations;
acquire other companies to gain new technologies or products that may displace our product lines;
• manufacture, market and sell products;
14
• devote resources to the development, production, promotion, support and sale of products; and
• deliver a broad range of competitive products at lower prices.
Our principal competitors are able to leverage their broader product portfolios and dominant market positions in
some segments by, for example, bundling their products into specially priced packages that create strong financial
incentives for their customers to purchase their products. These practices may negate savings customers would gain
from buying select products from ABI and may deter such customers from buying ABI’s products. We expect
competition in the markets in which we participate to continue to increase as existing competitors improve or
expand their product offerings.
How We Generate Revenue
The majority of our revenue comes from selling rapid, screening and testing products, largely through our
distribution networks. Some of our assays are used in the clinical laboratory to ultimately help healthcare
professionals to diagnosis a medical condition or complication that may require treatment. Other products can be
sold over-the-counter, to the general public, to help assess an individual’s status as it relates to his/her blood alcohol
or cholesterol level, to help monitor his/her progress on a specific wellness regimen, and/or to screen for a
biomarker that may be indicative of an individual’s general level of health. Some of our revenue is associated with
licensing payments that often relate to exclusive access to specific markets.
Our Current Target Markets
Given that, according to the HIT Report, 50% of cardiac surgery patients develop antibodies that have been found to
be the major determinant in the pathogenesis of HIT, the HIT-testing market largely resides within the clinical
hospital laboratories of medical facilities that perform major cardiac surgeries such as coronary artery bypass graft
(CABG) procedures. In the U.S., the Company accesses decision makers within these institutions through profiling
by its highly trained technical sales team and collaborative prospecting with distributor sales representatives. ABI
has also instituted an innovative teleconference program that trains laboratory professionals on the PIFA and PIFA
PLUSS product profiles and with product in-hand, walks them through the straightforward test procedures. This
training is intended to turn interest into immediate action and drives home the ease-of-use of the products.
Individuals that participate in remote training usually start the verification process to bring one or both of the assays
in-house, within a 4-week cycle. Internationally, ABI provides comprehensive training to its distributor partners to
enable them to implement the same selling and technical training strategies.
Manufacturing and Suppliers
We are a vertically integrated manufacturer, producing substantially all of our devices in-house. The vast majority of
our products start out as high quality, medical grade polymers and exit our facilities as fully manufactured and
packaged medical devices. As a result, we have a short supply line between our raw materials and finished goods
which gives us greater control over our product quality. The downside of our in-house manufacturing is the
requirements for facilities, power, and equipment. This approach also requires mid-to-long-term planning and the
ability to predict future needs. Many of our processes are unique to us, but the Company’s flexible manufacturing
capabilities and unused current capacity generally translate into relatively short production timelines. As demand for
our products increase, additional capacities may be required to advance our evolving needs.
We use a diverse and broad range of raw materials in the manufacturing of our products. We purchase all of our raw
materials and select items, such as packaging, from external suppliers. In addition, we purchase some supplies from
single sources for reasons of proprietary know-how, quality assurance, sole source availability, or due to regulatory
qualification requirements. US medical device manufacturers must establish and follow quality systems to help
ensure that their products consistently meet applicable requirements and specifications. The quality systems for
FDA-regulated products are known as current good manufacturing practices (“cGMP’s”). CGMP requirements for
devices in part 820 (21 CFR part 820) were first authorized by section 520(f) of the Federal Food, Drug, and
Cosmetic Act. We work closely with our suppliers to ensure continuity of supply while maintaining high quality and
reliability. To date, we have not experienced any significant difficulty locating and obtaining the materials necessary
to fulfill our production requirements. During the year ended December 31, 2013 three suppliers accounted for 60%
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of the Company’s total purchases. This makes the Company vulnerable to a near-term severe impact should the
relationships be terminated.
Distribution
We distribute our products through direct and indirect channels of distribution. We have well-developed indirect
distribution channels in the U.S. with Cardinal Health 200, Inc. (“Cardinal Health”) and Fisher Healthcare for the
Company’s PIFA Heparin/PF4 assays. Effective May 1, 2007 we entered into a distribution agreement (as
subsequently amended the “Cardinal Health Agreement”) with Cardinal Health. The Cardinal Health Agreement
grants Cardinal Health the non-exclusive right to distribute PIFA Heparin/PF4 Rapid Assays. Pricing terms for each
product are included in the Cardinal Agreement and vary depending on product and volume of the order. The
Cardinal Health Agreement automatically renews for successive twelve month unless either party (a) upon 30 days
written notice if either party commits or suffers any act of bankruptcy or insolvency, or fails to cure any material
breach of the provisions of the agreement within 30 days after written notice of such breach, or (b) upon 90 days
written notice with or without cause. On June 15, 2010 we entered into a distribution agreement with Fisher
Healthcare, a Division of Fisher Scientific Company L.L.C. (as subsequently amended, the “Fisher Agreement”).
The Fisher Agreement grants non-exclusive rights for Fisher Healthcare to distribute PIFA Heparin/PF4 Rapid
Assays, Heparin/PF4 serum panels, and BreathScan disposable breath alcohol detectors in the United States. Under
the Fisher Agreement we are required to fill all orders placed by Fisher Healthcare and do not have the right to
decline such orders. We must notify Fisher Healthcare of any proposed price increase at least 120 days prior to the
effective date of such increase. Payment terms are net 45 days from the date of receipt of an accurate invoice, and
Fisher Healthcare will not be in default if payments are made within five (5) days of the due date. The initial term of
the agreement was June 15, 2010 through May 31, 2012 and included initial pricing terms for each product that
varied depending on the product; however, ABI is able to submit pricing increases on an annual basis. The Fisher
Agreement automatically renews for successive twelve month periods at Fisher Healthcare’s option in its sole
discretion. All products sold to Cardinal Health and Fisher Healthcare must be purchased in ABI-designated case
quantities, however, there are no minimum purchase requirements under the Cardinal Health Agreement or Fisher
Agreement.
The relationships with Cardinal Health and Fisher Healthcare provide us with access to the majority of U.S.
hospitals. During the year ended December 31, 2013 sales to Cardinal Health and Fisher Healthcare accounted for
23% and 6% of the Company’s revenue, respectively. This concentration makes the Company vulnerable to a near-
term severe impact should the relationships be terminated. Our dedicated technical sales force works in tandem with
distributor sales representatives to uncover opportunities in the clinical laboratory marketplace. The Company
facilitates direct sales for hospitals that prefer to purchase direct from the manufacturer. In select European countries
and Australia we have distribution relationships with specialized sales and marketing organizations for some of our
products. We do not have a strong presence in many emerging markets, but are seeking to enter into agreements to
enable us to enter China in the current fiscal year.
With respect to the Company’s breath alcohol franchise, historically ABI 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 the Company serves in an OEM capacity. On June 19,
2012, ABI entered into License and Supply Agreement (the “License and Supply Agreement”) with Sono
International Limited (“SIL”), BreathScan International (Guersney) Limited and BreathScan International Limited
pursuant to which the Company granted SIL an exclusive license to market and distribute private-labeled versions of
ABI’s disposable breath alcohol detectors, to be supplied by the Company, outside the United States of America,
Canada and Mexico. On June 12, 2013, the Company entered into an amended License and Supply Agreement (the
“Amended License and Supply Agreement”) with Chubeworkx Guernsey Limited (as successor to SIL), (EN)10
(Guernsey) Limited (formerly BreathScan International (Guernsey) Limited) and (EN)10 Limited (formerly
BreathScan International Limited). Under the Amended License and Supply Agreement, among other obligations,
Chubeworkx is required to provide product purchase forecasts and maintain minimum order volumes. Chubeworkx
is required to pay invoices in full within 90 days of delivery. Chubeworkx shall pay the Company $0.30 per product
unit sold to Chubeworkx for the duration of the agreement. The initial term of the agreement is three (3) years. The
term will, unless mutually agreed by the Company and Chubeworkx in writing, automatically renew on a three year
16
rolling basis. Chubeworkx may terminate the agreement at any time after the initial term in whole or in part by
giving the Company not less than six months written notice.
We believe that the Amended License and Supply Agreement represents a significant shift in ABI’s breath alcohol
product strategy. Chubeworkx extensive “BE CHUBE” promotional program, which recently launched in the EU, is
helping to transform the way people from among the most at-risk populations view alcohol consumption and
emphasize the importance of proactive testing with their private-labeled CHUBE breath alcohol detectors. While the
majority of this marketing has been aimed at the French market, with all drivers on French roads, including foreign
passport holders and drivers of foreign vehicles legally required to carry at least one un-used NF Approved
disposable breathalyzer kit, Chubeworkx, through en10, also has active sales and marketing initiatives in the UK,
South Africa and Australia. The Amended License and Supply Agreement expanded the marketing and distribution
of the “BE CHUBE” program worldwide using the ABI breathalyzer. We believe that our decision to expand
Chubeworkx’s reach into North America will facilitate a global presence and likely increase demand for ABI-
manufactured private-label disposable breathalyzers. During the year ended December 31, 2013 sales to
Chubeworkx accounted for 56% of the Company’s revenue. Chubeworkx’s partnerships within Asia and Africa may
also serve to expand the demand for the Company’s PIFA PLUSS® Infectious Disease assays. To date, the
Company has not dedicated extensive production resources toward this product line as demand by the US
Government within the GSA contracting system has been minimal. With the expected expansion into the
international market with a focus on the developing world, it is anticipated that selling opportunities for infectious
disease rapid assays will increase.
We currently do not have a strong presence in many emerging markets. We have however, developed a distribution
relationship with Novotek Therapeutics Inc. (“Novotek”), a Beijing-based pharmaceutical and in vitro diagnostic
business development corporation. The multi-year agreement assigns exclusive sales and marketing rights to
Novotek to make ABI’s Particle ImmunoFiltration Assay (“PIFA”) products available in Mainland China once
market clearance is obtained (anticipated 2014). We are seeking to enter into additional agreements that will enable
us to enter other international markets in the current fiscal year. Through our expanded distribution relationship with
Chubeworkx, we anticipate pursuing business opportunities in Africa and other parts of Asia in the future. The
Company is in the process of solidifying relationships with distributors in the UK for these assays, with selling
expected to commence in the second quarter of 2014.
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 ABI logo is a registered trademark in the U.S. Other registered trademarks/service marks include: BreathScan®,
PIFA®, PIFA PLUSS®, seraSTAT®, HealthTest®, and Be a Hero, Get Their Keys®, and METRON®.
17
The following table summarizes the US and international utility patents that currently protect ABI’s intellectual
property; the core and emerging products to which they relate are also noted:
Description
blood separator and
method of
separating fluid fraction
from
whole blood
blood separator and
method of separating fluid
fraction from whole blood
blood separator and
method of separating fluid
fraction from whole blood
Jurisdiction
Utility
Patent No.
Type of
Protection
Expiration
Date
Product(s) To Which
They Relate
US
7,896,167 Manufacture 9/7/2026 seraSTAT®; PIFA PLUSS® PF4;
PIFA PLUSS® Infectious Diseases
Rapid Assays
US
8,097,171 Manufacture 8/5/2025 seraSTAT®; rapid blood cell
separator also integrated into PIFA
PLUSS® PF4 and PIFA PLUSS®
Infectious Diseases Rapid Assays
Japan
4,885,134 Manufacture 8/5/2025 seraSTAT®; rapid blood cell
separator also integrated into PIFA
PLUSS® PF4 and PIFA PLUSS®
Infectious Diseases Rapid Assays
hand-held fluid analyzer
US
hand-held fluid analyzer
US
7,285,246 Manufacture 11/19/2025 Breath Ketone “Check”®; Breath
PulmoHealth “Check”® suite of
products; BreathScan®;
BreathScan® PRO; CHUBETM;
METRON®; VIVOTM
7,837,936 Manufacture 9/12/2024 Breath Ketone “Check”®; Breath
PulmoHealth “Check”® suite of
products; BreathScan®;
BreathScan® PRO; CHUBETM;
METRON®; VIVOTM
kits and ligand assay plates
using two-tiered separation
for detection of
immunoreagent particles
US
5,565,366 Manufacture 5/25/2014 PIFA® Heparin/PF4 Rapid Assay;
PIFA PLUSS® PF4; PIFA PLUSS®
Infectious Diseases Rapid Assays
ligand assay method
US
5,827,749 Manufacture 10/11/2016 PIFA® Heparin/PF4 Rapid Assay;
PIFA PLUSS® PF4; PIFA PLUSS®
Infectious Diseases Rapid Assays
methods and kits for
detecting heparin/platelet
factor 4 antibodies
test strip card
test strip card
Japan
4,931,821 Manufacture 10/4/2025 PIFA® Heparin/PF4 Rapid Assay;
PIFA PLUSS® PF4
US
8,003,061 Manufacture 5/6/2024 Tri-Cholesterol “Check”®
US
8,425,859 Manufacture 5/6/2024 Tri-Cholesterol “Check”®
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
18
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.
ABI’s Tri-Cholesterol “Check”, PIFA Heparin/PF4 Rapid Assay, BreathScan PRO alcohol detection system, and an
earlier version of the Breath Ketone “Check” are CE-marked for sale in the EU for professional use. The CE-mark
must be affixed to a product that intended, by the manufacturer, to be used for a medical purpose and will be sold
into EU member states as well as Iceland, Norway and Liechtenstein. For ABI’s current and proposed “medical-
purpose” products, the CE-marking process is facilitated by self-certification, as a manufacturer must carry out a
conformity assessment, perform any appropriate electromagnetic testing, create a technical file with supporting
documentation, and sign an EC declaration of conformity. The documentation is verified by the Company’s
authorized representative in the EU and must be made available to authorities upon request.
Government Regulations
FDA Approval/Clearance Requirements
Unless an exemption applies, each medical device that we wish to market in the U.S. must receive 510(k) clearance.
It has been the Company’s experience thus far, that the FDA’s 510(k) clearance process usually takes from four to
twelve months, but can last significantly longer. We cannot be sure that 510(k) clearance will ever be obtained for
any product we propose to market. We have obtained any required FDA clearance for all of our current products that
require clearance.
The FDA decides whether a device line must undergo either the 510(k) clearance or Premarket approval (“PMA”).
PMA is the FDA process of scientific and regulatory review to evaluate the safety and effectiveness of Class III
medical devices. Class III devices are those that support or sustain human life, are of substantial importance in
preventing impairment of human health, or which present a potential, unreasonable risk of illness or injury. PMA
approval process based upon statutory criteria. These criteria include the level of risk that the agency perceives is
associated with the device and a determination whether the product is a type of device that is similar to devices that
are already legally marketed. Devices deemed to pose relatively less risk are placed in either Class I or II, which
requires the manufacturer to submit a premarket notification (“PMN”) requesting 510(k) clearance, unless an
exemption applies. The PMN must demonstrate that the proposed device is “substantially equivalent” in intended
use and in safety and effectiveness to a legally marketed predicate device, which is a pre-existing medical device to
which equivalence can be drawn, that is either in Class I, Class II, or is a Class III device that was in commercial
distribution before May 28, 1976, for which the FDA has not yet called for submission of a PMA application.
Class I devices are those for which safety and effectiveness can be assured by adherence to the FDA’s general
regulatory controls for medical devices, or the General Controls, which include compliance with the applicable
portions of the FDA’s quality system regulations, facility registration and product listing, reporting of adverse
medical events, and appropriate, truthful and non-misleading labeling, advertising, and promotional materials. Some
Class I devices also require premarket clearance by the FDA through the 510(k) PMN process described below. A
small number of our products are Class I devices.
Class II devices are subject to the FDA’s General Controls, and any other special controls as deemed necessary by
the FDA to ensure the safety and effectiveness of the device. Premarket review and clearance by the FDA for Class
II devices is accomplished through the 510(k) PMN procedure. Pursuant to the Medical Device User Fee and
Modernization Act of 2002, or MDUFMA, as of October 2002 unless a specific exemption applies, 510(k) PMN
submissions are subject to user fees. Certain Class II devices are exempt from this premarket review process. A
majority of our products, encompassing all of our significant product lines, are Class II devices. Class III devices are
those devices which have a new intended use, or use advanced technology that is not substantially equivalent to that
of a legally marketed device. The safety and effectiveness of Class III devices cannot be assured solely by the
General Controls and the other requirements described above. These devices almost always require formal clinical
studies to demonstrate safety and effectiveness and must be approved through the premarket approval process
described below. Premarket approval applications (and supplemental premarket approval applications) are subject to
significantly higher user fees under MDUFMA than are 510(k) PMNs. None of our products are Class III devices.
A clinical trial may be required in support of a 510(k) submission. These trials generally require an Investigational
Device Exemption, or IDE, application approved in advance by the FDA for a specified number of patients, unless
19
the product is deemed a non-significant risk device eligible for more abbreviated IDE requirements. The IDE
application must be supported by appropriate data, such as animal and laboratory testing results. Clinical trials may
begin if the IDE application is approved by the FDA and the appropriate institutional review boards at the clinical
trial sites.
Pervasive and Continuing FDA Regulation
A host of regulatory requirements apply to our marketed devices, including the quality system regulation (which
requires manufacturers to follow elaborate design, testing, control, documentation and other quality assurance
procedures), the Medical Reporting Regulations (“MDR”) regulations (which require that manufacturers report to
the FDA specified types of adverse events involving their products), labeling regulations, and the FDA’s general
prohibition against promoting products for unapproved or “off-label” uses. Class II devices also can have special
controls such as performance standards, post-market surveillance, patient registries and FDA guidelines that do not
apply to class I devices. Unanticipated changes in existing regulatory requirements or adoption of new cGMP
requirements could hurt our business, financial condition and results of operations.
Health Care Fraud and Abuse
In the United States, there are federal and state anti-kickback laws that generally prohibit the payment or receipt of
kickbacks, bribes or other remuneration in exchange for the referral of patients or other health-related business. For
example, the Federal Health Care Programs’ Anti-Kickback Law (42 U.S.C. §1320a-7b(b)) prohibits anyone from,
among other things, knowingly and willfully offering, paying, soliciting or receiving any bribe, kickback or other
remuneration intended to induce the referral of patients for, or the purchase, order or recommendation of, health care
products and services reimbursed by a federal health care program (including Medicare and Medicaid). Recognizing
that the federal anti-kickback law is broad and potentially applicable to many commonplace arrangements, the
Office of Inspector General within the Department of Health and Human Services, or OIG, has issued regulations,
known as the safe harbors, which identify permissible practices. If all of the requirements of an applicable safe
harbor are met, an arrangement will not be prosecuted under this law. Safe harbors exist for a number of
arrangements relevant to our business, including, among other things, payments to bona fide employees, certain
discount arrangements, and certain payment arrangements involving GPOs. The failure of an arrangement to fit
precisely within one or more safe harbors does not necessarily mean that it is illegal. However, conduct that does not
fully satisfy each requirement of an applicable safe harbor may result in increased scrutiny by government
enforcement authorities, such as the OIG or the Department of Justice. Violations of this federal law can result in
significant penalties, including imprisonment, monetary fines and assessments, and exclusion from Medicare,
Medicaid and other federal health care programs. Exclusion of a manufacturer would preclude any federal health
care program from paying for its products. In addition to the federal anti-kickback law, many states have their own
kickback laws. Often, these state laws closely follow the language of the federal law. Some state anti-kickback laws
apply regardless of whether federal health care program payment is involved. Federal and state anti-kickback laws
may affect our sales, marketing and promotional activities, and relationship with health care providers or laboratory
professionals by limiting the kinds of arrangements we may have with hospitals and others in a position to purchase
or recommend our products.
Federal and state false claims laws prohibit anyone from presenting, or causing to be presented, claims for payment
to third-party payors that are false or fraudulent. For example, the federal Civil False Claims Act (31 U.S.C. §3729
et seq.) imposes liability on any person or entity who, among other things, knowingly presents, or causes to be
presented, a false or fraudulent claim for payment by a federal health care program (including Medicaid and
Medicare). Manufacturers, like us, can be held liable under false claims laws, even if they do not submit claims to
the government, where they are found to have caused submission of false claims by, among other things, providing
incorrect coding or billing advice about their products to customers that file claims, or by engaging in kickback
arrangements with customers that file claims. A number of states also have false claims laws, and some of these
laws may apply to claims for items or services reimbursed under Medicaid and/or commercial insurance. Sanctions
under these federal and state laws may include civil monetary penalties, exclusion of a manufacturer’s products from
reimbursement under government programs, and imprisonment.
The Health Insurance Portability and Accountability Act of 1996, or HIPAA, created two new federal crimes: health
care fraud and false statements related to healthcare matters. The health care fraud statute prohibits knowingly and
20
willingly executing a scheme to defraud any health care benefit program, including private payors. A violation of
this statute is a felony and may result in fines, imprisonment or exclusion from government sponsored programs.
The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or
making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for
health care benefits, items or services. A violation of this statute is a felony and may result in fines or imprisonment.
Due to the breadth of some of these laws, it is possible that some of our current or future practices might be
challenged under one or more of these laws. In addition, there can be no assurance that we would not be required to
alter one or more of our practices to be in compliance with these laws. Evolving interpretations of current laws or
the adoption of new federal or state laws or regulations could adversely affect many of the arrangements we have
with customers and physicians. Our risk of being found in violation of these laws is increased by the fact that some
of these laws are open to a variety of interpretations. If our past or present operations are found to be in violation of
any of these laws, we could be subject to civil and criminal penalties, which could hurt our business, results of
operations and financial condition.
Foreign Regulation
Many foreign countries in which we market or may market our products have regulatory bodies and restrictions
similar to those of the FDA. International sales are subject to foreign government regulation, the requirements of
which vary substantially from country to country. The time required to obtain approval by a foreign country may be
longer or shorter than that required for FDA approval and the requirements may differ. Companies are now required
to obtain a CE Mark, which shows conformance with the requirements of applicable European Conformity
directives, prior to sale of some medical devices within the European Union. Some of our current products that
require CE Markings have them and it is anticipated that additional and future products may require them as well.
As of the date of this filing, the Company has received CE marks for eight for of its commercialized
products/product components: PIFA Heparin/PF4 Rapid Assay; Heparin/PF4 Serum Panels; Tri-Cholesterol
“Check” and BreathScan PRO Detectors, Analyzer Field Kit, Starter Kit and Blow Bags. An earlier version of the
Breath Ketone “Check” also bears a CE-Mark.
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.
21
Other U.S. Regulation
We must also comply with numerous federal, state and local laws relating to matters such as environmental
protection, safe working conditions, manufacturing practices, fire hazard control and, among other things, the
generation, handling, transportation and disposal of hazardous substances.
Employees
We currently employ 24 full-time equivalent employees, contractors or consultants, which include six in research
and development, three in general and administrative, four in sales and marketing and eleven in direct and indirect
manufacturing. We also engage a number of temporary employees and consultants. 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.
Available information
Our website address is www.akersbiosciences.com. We do not intend our website address to be an active link or to
otherwise incorporate by reference the contents of the website into this Report. The public may read and copy any
materials the Company files with the U.S. Securities and Exchange Commission (the “SEC”) at the SEC’s Public
Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation
of the Public Reference Room by calling the SEC at 1-800-SEC-0030. The SEC maintains an Internet website
(http://www.sec.gov) that contains reports, proxy and information statements and other information regarding
issuers that file electronically with the SEC.
Item 1A. Risk Factors.
You should carefully consider the risks described below, together with all of the other information included in this
report, in considering our business and prospects. The risks and uncertainties described below are not the only ones
facing the Company. Additional risks and uncertainties not presently known to us or that we currently deem
immaterial also may impair our business operations. The occurrence of any of the following risks could harm our
business, financial condition or results of operations.
Risks Related to the Company and Our Business
We have a history of operating losses and we cannot guarantee that we can ever achieve sustained profitability.
We have recorded a net loss in most reporting periods since our inception. Our net loss for the years ended
December 31, 2013 and December 31, 2012 were $1,526,773 and $2,557,820, respectively. Our accumulated deficit
at December 31, 2013 was $81,721,126. Losses are expected to continue for the foreseeable future. The Company
expects to continue to have development costs as it develops its next generation of products. We may never achieve
profitable operations or positive cash flow.
Our operating expenses will increase as we make further expenditures to enhance and expand our operations in
order to support additional growth in our business and public company reporting and compliance obligations.
Historically, we limited our investment in infrastructure; however, following this offering we expect our
infrastructure investments to increase substantially to support our anticipated growth and as a result of our becoming
a public reporting company in the United States. We intend to make additional investments in automated
manufacturing systems and personnel in order to expand our operations to support anticipated growth in our
business. In addition, to be competitive and take advantage of market opportunities, we may need to make changes
to our sales model in the future. These changes may result in higher selling, general and administrative expenses as a
percentage of our revenue. We also expect to incur additional operating costs as a public reporting company
following the completion of this offering. As a result of these factors, we expect our operating expenses to increase.
22
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, 2013, our principal customers included two clinical laboratory distributors, Cardinal Health and
Fisher Healthcare, that distribute our PIFA Heparin/PF4 Rapid Assays in the United States. Effective May 1, 2007
we entered into a distribution agreement (as subsequently amended, the “Cardinal Health Agreement”) with
Cardinal Health 200, Inc. (“Cardinal Health”). The Cardinal Health Agreement grants Cardinal Health the non-
exclusive right to distribute PIFA Herapin/PF4 Rapid Assays. Pricing terms for each product are included in the
Cardinal Agreement and vary depending on product and volume of the order. The Cardinal Health Agreement
automatically renews for successive twelve month unless either party (a) upon 30 days written notice if either party
commits or suffers any act of bankruptcy or insolvency, or fails to cure any material breach of the provisions of the
agreement within 30 days after written notice of such breach, or (b) upon 90 days written notice with or without
cause. On June 15, 2010 we entered into a distribution agreement with Fisher Healthcare, a Division of Fisher
Scientific Company L.L.C. (as subsequently amended, the “Fisher Agreement”). The Fisher Agreement grants non-
exclusive rights for Fisher Healthcare to distribute PIFA Heparin/PF4 Rapid Assays, Heparin/PF4 serum panels, and
BreathScan disposable breath alcohol detectors in the United States. Under the Fisher Agreement we are required to
fill all orders placed by Fisher Healthcare and do not have the right to decline such orders. The initial term of the
agreement was June 15, 2010 through May 31, 2012 and included initial pricing terms for each product that varied
depending on the product; however, ABI is able to submit pricing increases on an annual basis. The Fisher
Agreement automatically renews for successive twelve month periods at Fisher Healthcare’s option in its sole
discretion. There are no minimum purchase requirements under the Cardinal Health Agreement or Fisher
Agreement. All products sold to Cardinal Health and Fisher Healthcare must be purchased in ABI-designated case
quantities, but there are no annual minimum purchase requirements under either of the agreements.
For the year ended December 31, 2013, these two entities and Chubeworkx accounted for approximately 85% of the
Company’s revenue. Chubeworkx, which distributes ABI’S breathalyzers for its “Be CHUBE” selling initiative that
is being rolled out worldwide, became a significant purchaser of ABI’s products in 2013. Because of our
dependence on a limited number of key customers, the loss of a major customer (or loss of a key program with a
major customer), or any significant reduction in orders by a major customer or termination of the Cardinal Health
Agreement or Fisher Agreement would materially reduce our net sales and gross profit and adversely 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, 2013, Chubeworkx, Cardinal Health and Fisher Healthcare accounted for 97% of our accounts
receivable. In the case of insolvency by one of our significant customers, an account receivable with respect to that
customer might not be collectible, might not be fully collectible, or might be collectible over longer than normal
terms, each of which could adversely affect our financial position.
The Company’s business would suffer if the Company were unable to acquire adequate sources of supply.
We use a diverse and broad range of raw materials in the manufacturing of our products. We purchase all of our raw
materials and select items, such as packaging, from external suppliers. In addition, we purchase some supplies from
single sources for reasons of proprietary know-how, quality assurance, sole source availability, or due to regulatory
qualification requirements and disruption of these sources could have, at a minimum, a temporary adverse effect on
shipments and the financial results of the Company. US medical device manufacturers must establish and follow
quality systems to help ensure that their products consistently meet applicable requirements and specifications. The
quality systems for FDA-regulated products are known as current good manufacturing practices (“cGMP’s”).
CGMP requirements for devices in part 820 (21 CFR part 820) were first authorized by section 520(f) of the Federal
Food, Drug, and Cosmetic Act. We work closely with our suppliers to ensure continuity of supply while maintaining
high quality and reliability. To date, we have not experienced any significant difficulty locating and obtaining the
materials necessary to fulfill our production requirements. During the year ended December 31, 2013, three
suppliers accounted for 60% and during the year ended December 31, 2012, one supplier accounted for 42% of the
23
Company’s total purchases. Any prolonged inability to obtain certain materials or components could have an
adverse effect on the Company’s financial condition or results of operations and could result in damage to its
relationships with its customers and, accordingly, adversely affect the Company’s business.
We may require additional capital in the future to develop new products and otherwise support our operations. If
we do not obtain any such additional financing, if required, our business prospects, financial condition and
results of operations will be adversely affected.
We intend to invest significantly in our business before we expect cash flows from operations will be adequate to
cover our anticipated expenses. We believe that the proceeds of this offering and revenue from operations will be
sufficient to satisfy our needs for at least the next 18 months. We may need to obtain significant additional
financing, both in the short- and long-term, to make planned capital expenditures to cover operating expenses,
upgrades to our manufacturing operations, our ongoing product development and to fund to potential acquisitions, if
any. We may not be able to secure adequate additional financing when needed on acceptable terms, or at all. To
execute our business strategy, we may issue additional equity securities in public or private offerings, potentially at a
price lower than our initial public offering price or the market price of our common stock at the time of such
issuance. If we cannot secure sufficient additional funding we may be forced to forego strategic opportunities or
delay, scale back and eliminate future product development which would harm our business and our ability to
generate positive cash flow in the future.
Because we may not be able to obtain necessary regulatory clearances or approvals for some of our products, we
may not generate revenue in the amounts we expect, or in the amounts necessary to continue our business.
All of our proposed and existing products are subject to regulation in the U.S. by the U.S. Food and Drug
Administration and/or other domestic and international governmental, public health agencies, regulatory bodies or
non-governmental organizations. In particular, we are subject to strict governmental controls on the development,
manufacture, labeling, distribution and marketing of our products. The process of obtaining required approvals or
clearances varies according to the nature of, and uses for, a specific product. These processes can involve lengthy
and detailed laboratory testing, human clinical trials, sampling activities, and other costly, time-consuming
procedures. The submission of an application to a regulatory authority does not guarantee that the authority will
grant an approval or clearance for product. Each authority may impose its own requirements and can delay or refuse
to grant approval or clearance, even though a product has been approved in another country.
The time taken to obtain approval or clearance varies depending on the nature of the application and may result in
the passage of a significant period of time from the date of submission of the application. Delays in the approval or
clearance processes increase the risk that we will not succeed in introducing or selling the subject products, and we
may be required to abandon a proposed product after devoting substantial time and resources to its development.
Changes in domestic and foreign government regulations could increase our costs and could require us to undergo
additional trials or procedures, or could make it impractical or impossible for us to market our products for certain
uses, in certain markets, or at all.
Changes in government regulations may adversely affect our financial condition and results of operations because
we may have to incur additional expenses if we are required to change or implement new testing, manufacturing and
control procedures. If we are required to devote resources to develop such new procedures, we may not have
sufficient resources to devote to research and development, marketing, or other activities that are critical to our
business.
We are subject to regulations of various government agencies and if we are unable to comply with such
regulations it would materially affect our business
We can manufacture and sell our products only if we comply with certain regulations of government agencies. As a
U.S. manufacturer, we must operate our production facility in accordance with the requirements established by the
FDA under the Federal Food, Drug, and Cosmetic Act (FD&C Act). As such, we have implemented a quality
system that is intended to comply with applicable regulations. Our manufacturing plant is subject to periodic
inspections by the FDA, and at last inspection, the facility was found to be in substantial compliance with current
24
good manufacturing practice (cGMP) requirements. Although the Company is dedicated to remaining in compliance
with such practices, the cGMP requirements could change and negatively impact our ability to manufacture our
products without modifications to our operations procedures or changes to our equipment or human resource
allocations which may materially affect our business.
The commercial success of our products will depend upon the degree of market acceptance by physicians,
hospitals, third-party payors, and others in the medical community.
Ultimately, none of our current products or products in development, even if they receive approval, may ever gain
market acceptance by physicians, hospitals, third-party payors or others in the medical community. If these products
do not achieve an adequate level of acceptance, we may not generate significant product revenue and we may not
become profitable. The degree of market acceptance of our products, if approved for commercial sale, will depend
on a number of factors, including:
•
•
•
•
the efficacy and potential advantages over alternative treatments;
the ability to offer our products for sale at competitive prices;
the willingness of the target population to accept and adopt our products;
the strength of marketing and distribution support and the timing of market introduction of competitive
products; and
• publicity concerning our products or competing products and treatments.
Even if a potential product displays a favorable profile, market acceptance of the product will not be known until
after it is launched. Our efforts to educate the medical community and third-party payors on the benefits of our
products may require significant resources and may never be successful. Such efforts to educate the marketplace
may require more resources than are required by conventional technologies marketed by our competitors.
If we fail to obtain regulatory approval in foreign jurisdictions, then we cannot market our products in those
jurisdictions.
We plan to market some of our products in foreign jurisdictions, initially in China, the European Union (“EU”) and
South America, initially targeting Colombia and Brazil. 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. 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:
25
•
In accordance with the specifications of the foreign purchaser;
• Not in conflict with the laws of the country to which they are intended for export;
• Labeled on the outside of the shipping package that they are intended for export; and
• Not sold or distributed in the U.S.
We cannot guarantee that certain current and future products will meet all of the aforementioned specifications for
export which could adversely impact our ability to market our products outside the U.S.
We may be unable to market our products outside the United States if our products cannot meet regulatory
requirements of certain countries .
In the European Union, a product that meets the definition of an In Vitro Diagnostic Medical Device (“IVD”) in
accordance with the European Directive (98/79/EC) must receive regulatory approval known as a CE mark. The
letters “CE” are the abbreviation of the French phrase “Conforme Européene,” which means “European
conformity.” As such, export of these products to the European Union, and possibly other jurisdictions, without the
CE mark is not possible. Although obtaining a CE Mark is often a self-certification process, preparation and
submission of the technical file to an Authorized Representative in the EU, and their verification of a company’s
compliance with the Directive, can be a lengthy process. Some of the Company’s current and future products may
fall within the IVD categorization. As of the date of this filing, the Company has received CE marks for eight of its
commercialized products/product components: PIFA Heparin/PF4 Rapid Assay; Heparin/PF4 Serum Panels; Tri-
Cholesterol “Check” and BreathScan PRO Detectors, Analyzer Field Kit, Starter Kit and Blow Bags. An earlier
version of the Breath Ketone “Check” also bears a CE-Mark.
Further, some foreign countries, such as Canada and India, require that a medical device company’s manufacturing
facility be certified for compliance with the ISO 13485, an international standard for quality systems management.
The International Organization for Standardization (“ISO”) is the world’s largest developer of standards with 148
member countries. Given the expense and length of the ISO certification process, ABI is in the process of
investigating the cost and time commitments necessary to pursued ISO certification for its manufacturing facility. If
such certification is not possible to obtain with its current personnel resources, it may limit the Company’s ability to
launch selling initiatives, of certain products, within international markets such as India and Canada. ABI may not
be able to obtain foreign regulatory approval on a timely basis, if at all and to do so may cause ABI to incur
additional costs or prevent ABI from marketing its products in foreign countries, which may have a material adverse
effect on its business and results of operations.
Our products may not be able to compete with new diagnostic products or existing products developed by well-
established competitors, which would negatively affect our business.
According to “In Vitro Diagnostic Tests Come out of the Lab and Into the Home”, an article published by MDDI
online in March 2013, the diagnostic industry is focused on the testing of biological specimens in a laboratory or at
the point-of-care and is highly competitive and rapidly changing. Our principal competitors often have considerably
greater financial, technical and marketing resources than we do. Several companies produce diagnostic tests that
compete directly with our testing product line, including but not limited to, Abbott, ACON Laboratories, Inc., Alere,
Diagnostica Stago, SA, Immucor, Inc., OraSure Technologies, Inc., and Quidel Corporation. Many of these
competitors have substantially greater financial, marketing and other resources than we do and enjoy other
competitive advantages,
including, greater name recognition; established relationships with health care
professionals, companies and consumers; additional lines of products, the ability to offer rebates or higher discounts
and incentives; and greater resources for product development, sales and intellectual property protection. As new
products enter the market, our products may become obsolete or a competitor’s products may be more effective or
more effectively marketed and sold than ours. Although we have no specific knowledge of any competitor’s product
that will render our products obsolete, if we fail to maintain and enhance our competitive position or fail to
26
introduce new products and product features, our customers may decide to use products developed by our
competitors, which could result in a loss of revenue and cash flow.
In addition, the point-of-care diagnostics industry is undergoing rapid technological changes, with frequent
introductions of new technology-driven products and services, some of which focus on automated systems to
provide rapid results. As new technologies become introduced into the point-of-care diagnostic testing market, we
may be required to commit considerable additional efforts, time and resources to enhance our current product
portfolio or develop new products. We may not have the available time and resources to accomplish this and many
of our competitors have substantially greater financial and other resources to invest in technological improvements.
We may not be able to effectively implement new technology-driven products and services or be successful in
marketing these products and services to our customers, especially if rapid, manual testing products become
secondary, in large markets, to automated point-of-care systems. If these potential developments come to fruition
our operating results could be materially harmed.
Clinical trials that may be required to support regulatory submissions in the United States and in international
markets are expensive. We cannot assure that we will be able to complete any required clinical trial programs
successfully within any specific time period, and if such clinical trials take longer to complete than we project,
our ability to execute our current business strategy will be adversely affected.
Conducting clinical trials is a lengthy, time-consuming and expensive process. Before obtaining regulatory
approvals for the commercial sale of any products, we must demonstrate through clinical trials the safety and
effectiveness of our products. We have incurred, and we will continue to incur, substantial expense for, and devote a
significant amount of time to, product development, pilot trial testing, clinical trials and regulated, compliant
manufacturing processes. During the year ended December 31, 2013 research and development expense totaled
$1,006,800. The estimated research and development expense for the year ending December 31, 2014 is $1,400,000.
Even if completed, we do not know if these trials will produce statistically significant or clinically meaningful
results sufficient to support an application for marketing approval. Whether or not and how quickly we complete
clinical trials is dependent in part upon the rate at which we are able to advance the rate of patient enrollment, and
the rate to collect, clean, lock and analyze the clinical trial database.
Patient enrollment in trials is a function of many factors, including the design of the protocol, the size of the patient
population, the proximity of patients to and availability of clinical sites, the eligibility criteria for the study, the
perceived risks and benefits of the product candidate under study and of the control, if any, the medical
investigators’ efforts to facilitate timely enrollment in clinical trials, the patient referral practices of local physicians,
the existence of competitive clinical trials, and whether other investigational, existing or new products are available
or approved for the indication. If we experience delays in patient enrollment and/or completion of our clinical trial
programs, we may incur additional costs and delays in our development programs, and may not be able to complete
our clinical trials on a cost-effective or timely basis. Accordingly, we may not be able to complete the clinical trials
within an acceptable time frame, if at all. If we fail to enroll and maintain the number of patients for which the
clinical trial was designed, the statistical power of that clinical trial may be reduced, which would make it harder to
demonstrate that the product candidate being tested in such clinical trial is safe and effective. Further, if we or any
third party have difficulty enrolling a sufficient number of patients in a timely or cost-effective manner to conduct
clinical trials as planned, or if enrolled patients do not complete the trial as planned, we or a third party may need to
delay or terminate ongoing clinical trials, which could negatively affect our business.
The results of our clinical trials may not support either further clinical development or the commercialization of
our product candidates.
Even if our clinical trials are completed as planned, their results may not support either the further clinical
development or the commercialization of our product-candidates. The FDA or government authorities may not agree
with our conclusions regarding the results of our clinical trials. Success in preclinical testing and early clinical trials
does not ensure that later clinical trials will be successful, and the results from any later clinical trials may not
replicate the results of prior clinical trials and pre-clinical testing. The clinical trial process may fail to demonstrate
that our product candidates are safe and effective for indicated uses. This failure would cause us to abandon a
product candidate and may delay development of other product candidates. Any delay in, or termination of, our
27
clinical trials will delay the filing of our 510(k)’s and, ultimately, our ability to commercialize our product
candidates and generate product revenue. Each medical device marketed in the U.S. must receive a 510(k) clearance
from the FDA. A 510(k) is a premarket submission made to FDA to demonstrate that the device to be marketed is at
least as safe and effective, that is, substantially equivalent (“SE”), to a legally marketed device. Companies must
compare their device to one or more similar legally marketed devices, commonly known as “predicates”, and make
and support their substantial equivalency claims. The submitting company may not proceed with product marketing
until it receives an order from the FDA declaring a device substantially equivalent. The substantially equivalent
determination is usually made within 90 days, based on the information submitted by the submitter.
In addition, we or the FDA may suspend our clinical trials at any time if it appears that we are exposing participants
to unacceptable health risks or if the FDA finds deficiencies in the conduct of these trials. A number of companies in
the biotechnology industry have suffered significant setbacks in advanced clinical trials despite promising results in
earlier trials. In the end, we may be unable to develop marketable products.
Modifications to our devices may require additional FDA approval which could force us to cease marketing
and/or recall the modified device until we obtain new approvals .
After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness,
or that would constitute a major change in its intended use, requires a new 510(k) clearance or could require a
Premarket approval (“PMA”). PMA is the FDA process of scientific and regulatory review to evaluate the safety
and effectiveness of Class III medical devices. Class III devices are those that support or sustain human life, are of
substantial importance in preventing impairment of human health, or which present a potential, unreasonable risk of
illness or injury. Currently the Company does not market devices within this Class III category nor does it intend to
in the foreseeable future. However, the FDA requires each manufacturer to make this determination in the first
instance, but the FDA can review any decision. If the FDA disagrees with a manufacturer’s decision not to seek a
new 510(k) clearance, the agency may retroactively require the manufacturer to seek 510(k) clearance or PMA
approval. The FDA also can require the manufacturer to cease marketing and/or recall the modified device until
510(k) clearance or PMA approval is obtained. We have modified one of our prescription use, 510(k)-cleared
devices, specifically the PIFA Heparin/PF4 Rapid Assay to include our seraSTAT Separator. However, we
determined that, in our view, based on FDA guidance as to when to submit a 510(k) notification for changes to a
cleared device, new 510(k) clearances or PMA approvals are not required. We cannot assure you that the FDA
would agree with any of our decisions not to seek 510(k) clearance or PMA approval. If the FDA requires us to seek
510(k) clearance or PMA approval for any modification, we also may be required to cease marketing and/or recall
the modified device until we obtain a new 510(k) clearance or PMA approval.
We are subject to inspection and market surveillance by the FDA to determine compliance with regulatory
requirements. If the FDA finds that we have failed to comply, the agency can institute a wide variety of
enforcement actions which may materially affect our business operations .
We are subject to inspection and market surveillance by the FDA to determine compliance with regulatory
requirements. If the FDA finds that we have failed to comply, the agency can institute a wide variety of enforcement
actions, ranging from a public warning letter to more severe sanctions such as:
•
•
•
fines, injunctions and civil penalties;
recall, detention or seizure of our products;
the issuance of public notices or warnings;
• operating restrictions, partial suspension or total shutdown of production;
•
refusing our requests for 510(k) clearance of new products;
• withdrawing 510(k) clearance already granted; and
• criminal prosecution.
28
The FDA also has the authority to request repair, replacement or refund of the cost of any medical device
manufactured or distributed by us. Our failure to comply with applicable requirements could lead to an enforcement
action that may have an adverse effect on our financial condition and results of operations.
We may not have sufficient resources to effectively introduce and market our products, which could materially
harm our operating results.
Achieving market acceptance for our existing products such as our direct-to-consumer offerings (disposable
breathalyzers) and clinical laboratory testing solutions (Particle Immuno Filtration Assay (“PIFA”)-based heparin-
induced thrombocytopenia and infectious disease rapid tests) and introducing new products (breath condensate
detectors for the health & wellness categories) require substantial marketing efforts and will require our sales
account executives, contract partners, outside sales agents and distributors to make significant expenditures of time
and money. In some instances we will be significantly or totally reliant on the marketing efforts and expenditures of
our contract partners, outside sales agents and distributors. In early 2012 the Company reduced its account executive
staff by 40% to streamline operations and align ABI’s sales resources with the regional sales segmentation of our
clinical products distributors. Although this headcount reduction has positively impacted our budgets without
negatively effecting sales in comparison to the first six months of the prior fiscal year, the large account executive
territories may prove to be inefficient as we commercialize products and may hinder our revenue growth.
Because we currently have very limited marketing resources and sales capabilities, commercialization of our
products, some of which require regulatory clearance prior to market entrance, we must either expand our own
marketing and sales capabilities or consider collaborating with additional third parties to perform these functions.
We may, in some instances, rely significantly on sales, marketing and distribution arrangements with collaborative
partners and other third parties. In these instances, our future revenue will be materially dependent upon the success
of the efforts of these third parties.
Should we determine that expanding our own marketing and sales capabilities is required, we may not be able to
attract and retain qualified personnel to serve in our sales and marketing organization, to develop an effective
distribution network or to otherwise effectively support our commercialization activities. The cost of establishing
and maintaining a more comprehensive sales and marketing organization may exceed its cost effectiveness. If we
fail to further develop our sales and marketing capabilities, if sales efforts are not effective or if costs of increasing
sales and marketing capabilities exceed their cost effectiveness, our business, results of operations and financial
condition would be materially adversely affected.
We may not have the resources to conduct clinical protocols sufficient to yield data suitable for publication in
peer-reviewed journals and our inability to do so in the future could have an adverse effect on marketing our
products effectively.
In order for our products targeted for use by hospital laboratory professionals and healthcare providers to be widely
adopted, clinical protocols that are designed to yield data suitable for publication in peer-reviewed journals should
be carried out. These studies are often time-consuming, labor-intensive and expensive to execute. The Company has
not had the resources to effectively implement such clinical programs within its clinical development activities and
may not be able to do so in the future. In addition, if a protocol is initiated, the results of which may ultimately not
support the anticipated positioning and benefit proposition for the product. Either of these scenarios could hinder our
ability to market our products and revenue may decline.
Our future performance will depend largely on the success of products we have not developed yet.
Technology is an important component of our business and growth strategy, and our success depends to a significant
extent on the development, implementation and acceptance of new products. Commitments to develop new products
must be made well in advance of any resulting sales, and technologies and standards may change during
development, potentially rendering our products outdated or uncompetitive before their introduction. Our ability to
develop products to meet evolving industry requirements and at prices acceptable to our customers will be
dependent on a number of factors including, funding availability to complete development efforts, our ability to test
and refine products, successfully conduct clinical trials and seek to obtain required FDA clearance or foreign
29
approval/certification for products that require such regulatory authorizations. Physician patients and third party
payors and the medical community may be slow to adopt any of our products. Moreover, there can be no assurance
that the products that we are developing will receive FDA clearance, work effectively in the marketplace or gain
market acceptance. We may expend considerable funds and other resources on the development of next-generation
products without any guarantee that these products will be successful.
If we are not successful in bringing new products to market, whether because we fail to address marketplace
demand, fail to develop viable technologies or otherwise, our revenue may decline and our results of operations
could be seriously harmed.
If we fail to establish, maintain and expand relationships with distributors, sales of our products would decline.
The Company does not control the efforts of its distributors and its distributors are not prohibited from selling
competing products. Our ability to sell our products depends largely on the Company’s relationships with such
distributors. Accordingly, we are subject to the risk that they may not commit the financial and other resources to
market and sell our products to our level of expectation, they may experience financial hardship or they may
otherwise terminate our relationship on short notice. In the U.S. clinical laboratory marketplace, many of our
existing and potential customers purchase our products through our two national distributors, Cardinal Health, Inc.
and Fisher HealthCare. ABI’s sales account executives work in tandem with distributor sales representatives to gain
access to decision makers within the majority of U.S. medical facilities. In addition, the Company relies on its
distribution network to negotiate pricing arrangements and contracts with Group Purchasing Organizations and their
affiliated hospitals and other members. For the years ended December 31, 2013 and 2012, 81% and 79%,
respectively of total revenue from the sale of the Company’s Heparin/PF4 Assay products was generated through
our U.S. distributors’ purchases, with Cardinal Health accounting for 64% of total sales for each year ended
December 31, 2013 and 2012. In the future, if we are unable to maintain existing relationships and/or grow to be
recognized as a prominent medical device supplier within these organizations, and/or develop new relationships with
additional U.S. and international distributors, our competitive position would likely suffer and our business would
be harmed.
We have just begun to develop formal business relationships with foreign distributors for all of our in-line products.
We will therefore be dependent upon the financial health of these organizations to further grow our business. If a
distributor were to go out of business, it would take substantial time, cost and resources to find a suitable
replacement and the product registrations and certifications held by such distributor may not be returned to us or to a
subsequent distributor in a timely manner or at all. Any failure to produce foreign sales may negatively affect our
profitability in the short- and long-term. Since some of our products have CE-Marks and/or are earmarked for sale in
Europe where healthcare regulation and reimbursement for medical devices vary significantly from country to
country, this changing environment could adversely affect our ability to sell our products in some European
countries. In addition, the Company is working with an exclusive distributor in mainland China to register ABI’s
PIFA Heparin/PF4 Rapid Assay for eventual sale. Since additional clinical studies must be performed by our
distributor partner within Chinese healthcare facilities as part of their regulatory submission, there is no guarantee
that the results of their protocol will support the successful registration of the product and permit sales activity.
Failure to gain product registration in China will hinder the Company’s ability to increase its revenue.
Our business is vulnerable to the availability of raw materials, our ability to forecast customer demand and our
ability to manage production capacity.
Our ability to meet customer demand depends, in part, on our production capacity and on obtaining supplies, a
number of which can only be obtained from a single supplier or a limited number of suppliers. A reduction or
disruption in our production capacity or our supplies could delay products and fulfillment of orders and otherwise
negatively impact our business.
We must accurately predict both the demand for our products and the lead times required to obtain the necessary
components and materials. If we overestimate demand, we may experience underutilized capacity and excess
inventory levels. If we underestimate demand, we may miss delivery deadlines and sales opportunities and incur
additional costs for labor overtime, equipment overuse and logistical complexities. Additionally, our production
capacity could be affected by manufacturing problems. Difficulties in the production process could reduce yields or
30
interrupt production, and, as a result, we may not be able to deliver products on time or in a cost-effective,
competitive manner. Our failure to adequately manage our capacity could have a material adverse effect on our
business, financial condition and results of operations.
Our ability to meet customer demand also depends on our ability to obtain timely and adequate delivery of materials,
parts and components from our suppliers. We generally do not maintain contracts with any of our key suppliers.
From time to time, suppliers may extend lead times, limit the amounts supplied to us or increase prices due to
capacity constraints or other factors. Supply disruptions may also occur due to shortages in critical materials. In
addition, a number of our raw materials are obtained from a single supplier. Many of our suppliers must undertake a
time-consuming qualification process before we can incorporate their raw materials into our production process. If
we are unable to obtain materials from a qualified supplier, it can take up to a year to qualify a new supplier,
assuming an alternative source of supply is available. A reduction or interruption in supplies or a significant increase
in the price of one or more supplies could have a material adverse effect on our business, financial condition and
results of operations.
Our manufacturing facility is vulnerable to natural disasters and other unexpected losses, and we may not have
adequate insurance to cover such losses.
We have one manufacturing facility, located in Thorofare, New Jersey, for production of all of our finished goods
production. Our facility is susceptible to damage from fire, floods, loss of power or water supply,
telecommunications failures and similar events. Since some of our raw materials and finished goods are
temperature-sensitive and our facility currently does not have a back-up generator, a moderate-to-severe disruption
in power may render various levels of our inventories unusable or unsalable, resulting in a sufficient write off of
inventory and may immediately impact our ability to generate revenue.
Any natural disaster could significantly disrupt our operations. In the event that our facility was affected by a natural
or man-made disaster, we would be forced to rely on third-party manufacturers. Our insurance for damage to our
property and the disruption of our business from casualties may not be sufficient to cover all of our potential losses
and may not continue to be available to us on acceptable terms, or at all. If we are forced to seek alternative
facilities, we may incur additional transition costs and we may experience a disruption in the supply of our products
until the new facility is available and operating. In addition, much of the machinery we use in our production
process is custom-made. If such machinery is damaged, we may experience a long lead-time before this unique
machinery is replaced or rebuilt and we are able to resume production.
Our manufacturing and distribution operations are highly dependent on our information technology systems and we
do not currently have a redundant data center. In the event of a failure of our primary data center, our manufacturing
and distribution operations will be disrupted which will adversely affect our business.
In addition, any disruption, delay, transition or expansion of our manufacturing operations could impair our ability
to meet the demand of our customers and our customers may cancel orders or purchase products from our
competitors, which could adversely affect our business, financial condition and results of operations.
Some of our finished goods, including our PIFA products and control materials related to PIFA Heparin/PF4
assays, are temperature-sensitive.
Proper packaging and time in transit are critical to the stability of some of our clinical laboratory products when they
are en route to our distributors or end users. If certain specialized packaging materials cannot be obtained, and/or if
our contracted common carriers, or those of our distributors, cannot meet product-specific delivery requirements,
our products may not perform as intended and may lead to requests for product replacement. If such issues become
widespread it could hurt our reputation and we could potentially lose customers which would adversely affect our
business.
Also, given the issue of temperature sensitivity, time in transit may limit our ability to service potential markets
outside of the U.S. for those products, especially those with geographies that do not allow for shipment and customs
clearance within four business days. This could adversely affect our potential to generate revenue for some products
on an international level.
31
We are subject to environmental, health and safety laws, which could increase our costs and restrict our
operations in the future.
Our operations are subject to environmental, health and safety laws and regulations in each of the jurisdictions in
which we operate. These laws and regulations concern, among other things, the generation, handling, transportation
and disposal of hazardous substances or wastes, the clean-up of hazardous substance releases, and the emission or
discharge of materials into the air or water. Although we currently incur limited expenditures in connection with
these environmental health and safety laws and regulations, if we fail to comply with the requirements of such laws
and regulations or if such laws changes significantly in the future, we could incur substantial additional costs to alter
our manufacturing processes and/or adjust our supply chain management. Such changes could also result in
significant inventory obsolescence. Compliance with environmental, health and safety requirements could also
restrict our ability to expand our facilities in the future.
Our business is vulnerable to inflation.
We are limited in our ability to raise prices for some products, particularly in the clinical laboratory marketplace
where cost-containment pressures are significant. As a result, increases in our raw materials, production and
transportation costs may have a material adverse impact on our results of operations.
Demands of third-party payors, cost reduction pressures among our customers and restrictive reimbursement
practices may adversely affect our revenue.
Our ability to negotiate favorable contracts with non-governmental payors, including managed-care plans or Group
Purchasing Organizations (“GPOs”), even if facilitated by our distributors, may significantly affect revenue and
operating results. Our customers continue to face cost reduction pressures that may cause them to curtail their use of,
or reimbursement for some of our products, to negotiate reduced fees or other concessions or to delay payment.
Furthermore, the increasing leverage of organized buying groups among non-governmental payors may reduce
market prices for our products and services, thereby reducing our profitability. Reductions in price increases or the
amounts received from current customers or lower pricing for our products to new customers could have a material
adverse effect on the financial position, cash flows and results of operations.
Failure to obtain medical reimbursement for our products under development, as well as a changing regulatory
and reimbursement environment, may impact our business.
The U.S. healthcare regulatory environment may change in a way that restricts our ability to market our products
due to medical coverage or reimbursement limits. Sales of our diagnostic tests will depend in part on the extent to
which the costs of such tests are covered by health maintenance, managed care, and similar healthcare management
organizations, or reimbursed by government health payor administration authorities, private health coverage insurers
and other third-party payors. These healthcare payors are increasingly challenging the prices charged for medical
products and services. The containment of healthcare costs has become a priority of federal and state governments.
Accordingly, our potential products may not be considered to be cost effective, and reimbursement may not be
available or sufficient to allow us to sell our products on a competitive basis. Legislation and regulations affecting
reimbursement for our products may change at any time and in ways that are difficult to predict and these changes
may be adverse 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
32
markets may be dependent on the availability of reimbursement for our products under health care payment systems
in such markets. There can be no assurance that reimbursement for our products, will be obtained or that such
reimbursement will be adequate.
Health care legislation, including the Patient Protection and Affordable Care Act and the Health Insurance
Portability and Accountability Act of 1996, may have a material adverse effect on us.
The Patient Protection and Affordable Care Act (“PPACA”) substantially changes the way healthcare is financed by
government and private insurers, encourages improvements in healthcare quality, and impacts the medical device
industry. The PPACA includes an excise tax on entities that manufacture or import medical devices offered for sale
in the United States; a new Patient-Centered Outcomes Research Institute to conduct comparative effectiveness
research; and payment system reforms.
The PPACA also imposes new reporting and disclosure requirements on device and drug manufacturers for any
payment or transfer of value made or distributed to physicians or teaching hospitals. Under these provisions, known
as the Physician Payment Sunshine Act, affected device and drug manufacturers need to begin data collection on
August 1, 2013, with the first reports due in 2014. These provisions require, among other things, extensive tracking
and maintenance of databases regarding the disclosure of relationships and payments to physicians and teaching
hospitals. In addition, certain states have passed or are considering legislation restricting our interactions with health
care providers and/or requiring disclosure of many payments to them. Failure to comply with these tracking and
reporting laws could subject us to significant civil monetary penalties.
The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) created new federal statutes to prevent
healthcare fraud and false statements relating to healthcare matters. The healthcare fraud statute prohibits knowingly
and willfully executing a scheme to defraud any healthcare benefit program, including private payors. A violation of
this statute is a felony and may result in fines, imprisonment or exclusion from government sponsored programs
such as the Medicare and Medicaid programs. The false statements statute prohibits knowingly and willfully
falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement
in connection with the delivery of or payment for healthcare benefits, items or services. A violation of this statute is
a felony and may result in fines or imprisonment or exclusion from government sponsored programs. HIPAA also
established uniform standards governing the conduct of certain electronic healthcare transactions and protecting the
security and privacy of individually identifiable health information maintained or transmitted by healthcare
providers, health plans and healthcare clearinghouses.
Both federal and state government agencies are continuing heightened and coordinated civil and criminal
enforcement efforts. As part of announced enforcement agency work plans, the federal government will continue to
scrutinize, among other things, the billing practices of hospitals and other providers of healthcare services. The
federal government also has increased funding to fight healthcare fraud, and it is coordinating its enforcement efforts
among various agencies, such as the U.S. Department of Justice, the Office of Inspector General and state Medicaid
fraud control units. We believe that the healthcare industry will continue to be subject to increased government
scrutiny and investigations.
We may fail to recruit and retain qualified personnel.
We expect to rapidly expand our operations and grow our sales, development and administrative operations. This
expansion is expected to place a significant strain on our management and will require hiring a significant number of
qualified personnel. Accordingly, recruiting and retaining such personnel in the future will be critical to our success.
There is intense competition from other companies for qualified personnel in the areas of our activities, particularly
sales, marketing and research & development. If we fail to identify, attract, retain and motivate these highly skilled
personnel, we may be unable to continue our marketing and development activities, and this could have a material
adverse effect on the Company’s business, financial condition, results of operations and future prospects.
We may face risks in connection with potential acquisitions.
We may look to acquire businesses that complement or expand our operations as part of our business strategy going
forward. We may not be able to successfully identify attractive acquisition candidates or negotiate favorable terms in
33
the future. Furthermore, our ability to effectively integrate any future acquisitions will depend on, among other
things, the adequacy of our implementation plans, the ability of our management to oversee and operate effectively
the combined operations and our ability to achieve desired operational efficiencies. If we are unable to successfully
integrate the operations of any businesses that we may acquire in the future, our business, financial position, results
of operations or cash flows could be adversely affected.
We rely on key executive officers, and their knowledge of our business and technical expertise would be difficult
to replace.
We are highly dependent on our Executive Chairman, Raymond F. Akers, Jr., PhD because of his expertise and
experience in biotechnology and diagnostics. We have a three year employment agreement with Dr. Akers
containing customary non-disclosure, non-compete, confidentiality and assignment of inventions provisions. We do
not have “key person” life insurance policies for any of our officers. The loss of the technical knowledge and
management and industry expertise of any of our key personnel could result in delays in product development, loss
of customers and sales and diversion of management resources, which could adversely affect our operating results.
We may need to obtain additional licenses to patents or other proprietary rights from other parties.
To facilitate development and commercialization of a proprietary technology base, we may need to obtain additional
licenses to patents or other proprietary rights from other parties. Obtaining and maintaining these licenses, which
may not be available, may require the payment of up-front fees and royalties. In addition, if we are unable to obtain
these types of licenses, our product development and commercialization efforts may be delayed or precluded.
We may not be able to protect or enforce our intellectual property rights, which could impair our competitive
position.
Our success depends significantly on our ability to protect our rights to the patents, trademarks, trade secrets,
copyrights and all other intellectual property rights used in our products. Protecting our intellectual property rights is
costly and time consuming. We rely primarily on patent protection and trade secrets, as well as a combination of
copyright and trademark laws and nondisclosure and confidentiality agreements to protect our technology and
intellectual property rights. However, these legal means afford only limited protection and may not adequately
protect our rights or permit us to gain or maintain any competitive advantage. Despite our intellectual property rights
practices, it may be possible for a third party to copy or otherwise obtain and use our technology without
authorization, develop similar technology independently or design around our patents.
We cannot be assured that any of our pending patent applications will result in the issuance of a patent to us. The
U.S. Patent and Trademark Office, or PTO, may deny or require significant narrowing of claims in our pending
patent applications, and patents issued as a result of the pending patent applications, if any, may not provide us with
significant commercial protection or be issued in a form that is advantageous to us. We could also incur substantial
costs in proceedings before the PTO. Our issued and licensed patents and those that may be issued or licensed in the
future may expire or may be challenged, invalidated or circumvented, which could limit our ability to stop
competitors from marketing related technologies. Upon expiration of our issued or licensed patents, we may lose
some of our rights to exclude others from making, using, selling or importing products using the technology based
on the expired patents. There is no assurance that competitors will not be able to design around our patents. We also
rely on unpatented proprietary technology. We cannot assure you that we can meaningfully protect all our rights in
our unpatented proprietary technology or that others will not independently develop substantially equivalent
proprietary products or processes or otherwise gain access to our unpatented proprietary technology. Further, we
may not be able to obtain patent protection or secure other intellectual property rights in all the countries in which
we operate, and under the laws of such countries, patents and other intellectual property rights may be unavailable or
limited in scope. If any of our patents fail to protect our technology, it would make it easier for our competitors to
offer similar products. Our trade secrets may be vulnerable to disclosure or misappropriation by employees,
contractors and other persons. Any inability on our part to adequately protect our intellectual property may have a
material adverse effect on our business, financial condition and results of operations.
34
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 issue as 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. On January 9, 2012, the Company was notified of an action to recover unpaid
royalties for the exclusive use of a patent used in the production of our MPC Biosensor products (MicroParticle
Catalyzed Biosensor). The dispute related to the method used to calculate royalty payments and the scope of the
products involved for the period dated March 17, 2007 through March 19, 2012. On April 23, 2012, the Company
agreed to an arbitration settlement of $137,791. On January 11, 2012, the Company was notified of a demand for
arbitration from Trinity Biotech Manufacturing Limited related to the distributor agreement between the parties
dated June 19, 2008. On October 15, 2012, the Company agreed to an arbitration settlement of $118,000. The
settlement is being paid over 13 months, with an initial payment of $18,000 and 12 equal payments of $8,333.
Furthermore, a third party may claim that we are infringing the third party’s patent rights and may go to court to stop
us from engaging in our normal operations and activities, including making or selling our product candidates. These
lawsuits are costly and could affect our results of operations and divert the attention of managerial and technical
personnel. There is a risk that a court would decide that we are infringing the third party’s patents and would order
us to stop the activities covered by the patents. In addition, there is a risk that a court will order us to pay the other
party’s treble damages or attorneys’ fees for having violated the other party’s patents. The biotechnology industry
has produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents
cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts,
and the interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate
that our products or methods of use either do not infringe the claims of the relevant patent and/or that the third party
patent claims are invalid, and we may not be able to do this. Proving invalidity in the United Sates, in particular, is
difficult since it requires a showing of clear and convincing evidence to overcome the presumption of validity
enjoyed by issued patents.
In addition, changes in either patent laws or in interpretations of patent laws in the United States and other countries
may materially diminish the value of our intellectual property or narrow the scope of our patent protection. In
September 2011, the U.S. Congress passed the Leahy-Smith America Invents Act (“AIA”) which became effective
in March 2013. The AIA reforms United States patent law in part by changing the standard for patent approval for
certain patents from a “first to invent” standard to a “first to file” standard and developing a post-grant review
system. It is too early to determine what the effect or impact the AIA will have on the operation of our business and
the protection and enforcement of our intellectual property. However, the AIA and its implementation could increase
the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of
our issued patents, all of which could have a material adverse effect on our business and financial condition.
Because some patent applications in the United States may be maintained in secrecy until the patents are issued,
patent applications in the United States and many foreign jurisdictions are typically not published until eighteen
months after filing, and publications in the scientific literature often lag behind actual discoveries. We cannot be
35
certain that others have not filed patent applications for technology covered by our issued patents or our pending
applications or that we were the first to invent the technology (pre-AIA) or first to file (post-AIA). Our competitors
may have filed, and may in the future file, patent applications covering technology similar or the same as ours. Any
such patent application may have priority over our patent application and could further require us to obtain rights to
such technologies in order to carry on our business. If another party has filed a U.S. patent application on inventions
similar or the same as ours, we may have to participate in an interference or other proceeding in the U.S. Patent and
Trademark Office, or the USPTO, or a court to determine priority of invention in the United States, for pre-AIA
applications and patents. The costs of these proceedings could be substantial, and it is possible that such efforts
would be unsuccessful, resulting in a loss of our U.S. patent position with respect to such inventions.
Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can
because they have substantially greater resources. To date, neither the Company, its founders, directors nor officers
have been involved in any material litigation relating to Company matters. In addition, any uncertainties resulting
from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the
funds necessary to continue our operations.
Our failure to secure trademark registrations could adversely affect our ability to market our product candidates
and our business.
Our trademark applications in the United States and any other jurisdictions where we may file may not be allowed
registration, and we may not be able to maintain or enforce our registered trademarks. During trademark registration
proceedings, we may receive rejections. Although we are given an opportunity to respond to those rejections, we
may be unable to overcome such rejections. In addition, in the USPTO and in corresponding foreign agencies, third
parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered
trademarks. Opposition or cancellation proceedings may be filed against our applications and/or registrations, and
our applications and/or registrations may not survive such proceedings. Failure to secure such trademark
registrations in the United States and in foreign jurisdictions could adversely affect our ability to market our product
candidates and our business.
We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their
former employers.
As is common in the biotechnology and pharmaceutical industry, we employ individuals who were previously
employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors.
Although the Company has no knowledge of any claims against us, we may be subject to claims that these
employees or 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 not be able to adequately protect our intellectual property outside of the United States.
The laws in some foreign jurisdictions may not provide protection for our trade secrets and other intellectual
property. If our trade secrets or other intellectual property are misappropriated in foreign jurisdictions, we may be
without adequate remedies to address these issues. Additionally, we also rely on confidentiality and assignment of
invention agreements to protect our intellectual property. These agreements may provide for contractual remedies in
the event of misappropriation. We do not know to what extent, if any, these agreements and any remedies for their
breach, will be enforced by a foreign or domestic court. In the event our intellectual property is misappropriated or
infringed upon and an adequate remedy is not available, our future prospects will likely diminish.
Additionally, prosecuting and maintaining intellectual property (particularly patent) rights are very costly endeavors.
We do not know whether legal and government fees will increase substantially and therefore are unable to predict
whether cost may factor into our intellectual property strategy.
If we deliver products with defects, we may be subject to product recalls or negative publicity, our credibility may
be harmed, market acceptance of our products may decrease and we may be exposed to liability.
36
The manufacturing and marketing of professional and consumer diagnostics involve an inherent risk of product
liability claims. For example, a defect in one of our diagnostic products could lead to a false positive or false
negative result, affecting the eventual diagnosis. Our product development and production are extremely complex
and could expose our products to defects. Manufacturing and design defects could lead to recalls (either voluntary or
required by the FDA or other government authorities) and could result in the removal of a product from the market.
Defects in our products could also harm our reputation, lead to product liability claims, claims that inaccurate test
results lead to death or injury, negative publicity and decrease sales of our products. We have obtained $10,000,000
of product liability insurance and we have never received a product liability claim, and have generally not seen
product liability claims for screening tests that are accompanied by appropriate disclaimers. However, in the event
there is a claim, this insurance may not fully cover our potential liabilities. In addition, as we attempt to bring new
products to market, we may need to increase our product liability coverage which would be a significant additional
expense that we may not be able to afford. If we are unable to obtain sufficient insurance coverage at an acceptable
cost to protect us, we may be forced to abandon efforts to commercialize our products or those of our strategic
partners, which would reduce our revenue.
If our estimates relating to our critical accounting policies are based on assumptions or judgments that change or
prove to be incorrect, our operating results could fall below expectations of financial analysts and investors,
resulting in a decline in our stock price.
The preparation of financial statements in conformity with U.S. GAAP requires our management to make estimates,
assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes. We
base our estimates on historical experience and on various other assumptions that we believe to be reasonable under
the circumstances, the results of which form the basis for making judgments about the carrying values of assets,
liabilities, equity, revenue and expenses that are not readily apparent from other sources. Our operating results may
be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions,
which could cause our operating results to fall below the expectations of financial analysts and investors, resulting in
a decline in our stock price. Significant assumptions and estimates used in preparing our financial statements include
those related to revenue recognition, inventory, product warranties, allowance for doubtful accounts, stock-based
compensation expense and income taxes.
As an emerging growth company within the meaning of the Securities Act, we will utilize certain modified
disclosure requirements, and we cannot be certain if these reduced requirements will make our common stock
less attractive to investors.
We are an emerging growth company within the meaning of the rules under the Securities Act. We have utilized,
and we plan in future filings with the SEC to continue to utilize, the modified disclosure requirements available to
emerging growth companies, including reduced disclosure about our executive compensation and omission of
compensation discussion and analysis, and an exemption from the requirement of holding a nonbinding advisory
vote on executive compensation. In addition, we will not be subject to certain requirements of Section 404 of the
Sarbanes-Oxley Act, including the additional testing of our internal control over financial reporting as may occur
when outside auditors attest as to our internal control over financial reporting, and we have elected to delay adoption
of new or revised accounting standards applicable to public companies. As a result, our stockholders may not have
access to certain information they may deem important.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can utilize the extended
transition period provided in Section 7(a)(2)(B) of the Securities Act which allows us to delay the adoption of
compliance with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of
certain accounting standards until those standards would otherwise apply to private companies. We have elected to
utilize this extended transition period. Our financial statements may therefore not be comparable to those of
companies that comply with such new or revised accounting standards as they become applicable to public
companies. We cannot predict if investors will find our common stock less attractive because we will rely on these
exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading
market for our common stock and our stock price may be more volatile.
37
We could remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the
first fiscal year in which our annual gross revenue exceeds $1 billion, (ii) the date that we become a “large
accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our
common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently
completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible
debt during the preceding three-year period.
We have not performed an evaluation of our internal control over financial reporting, such as required by Section
404 of the Sarbanes-Oxley Act, nor have we engaged our independent registered public accounting firm to perform
an audit of our internal control over financial reporting as of any balance sheet date or for any period reported in our
financial statements. Had we performed such an evaluation or had our independent registered public accounting firm
performed an audit of our internal control over financial reporting, material weaknesses may have been identified.
For so long as we qualify as an “emerging growth company” under the JOBS Act, which may be up to five years
following this offering, we will not have to provide an auditor’s attestation report on our internal controls in future
annual reports on Form 10-K as otherwise required by Section 404(b) of the Sarbanes-Oxley Act. During the course
of the evaluation, documentation or attestation, we or our independent registered public accounting firm may
identify weaknesses and deficiencies that we may not otherwise identify in a timely manner or at all as a result of the
deferred implementation of this additional level of review.
Our legal counsel has advised us that we may have violated Section 402 of the Sarbanes-Oxley Act of 2002,
which prohibits an issuer from extending or maintaining personal loans to its directors or executive officers. As a
result, we could become subject to criminal, civil or administrative sanctions or penalties and we may also face
potential private securities litigation.
On September 14, 2012, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”)
with Mr. Thomas J. Knox. Pursuant to the Purchase Agreement, Mr. Knox purchased, amongst other things,
10,000,000 shares of the Series A Preferred Stock. The Series A Preferred Stock were convertible at any time into
320,512 shares of common stock. The Company requested that Mr. Knox convert the Series A Preferred Stock, and
though under no obligation to do so, on November 15, 2013, Mr. Knox converted all 10,000,000 shares of Series A
Preferred Stock into 320,512 shares of common stock pursuant to the terms of the Series A Preferred Stock. In order
to satisfy the required onetime payment of $500,000 (the “Purchase Price”) due upon conversion as set forth in the
Purchase Agreement, Mr. Knox issued a promissory note in favor of the Company for the principal aggregate
amount of $500,000 (the “2013 Knox Note”). The 2013 Knox Note required payment of the principal in full prior to
maturity date of November 15, 2014 (the “Maturity Date”) with interest on the unpaid principal balance at the rate
of the thirty day average LIBOR per annum commencing on November 15, 2013. The 320,512 shares of common
stock were to be held by the Company as collateral until all amounts owing under the 2013 Knox Note were paid in
full.
We have taken immediate steps to address the above situation by cancelling the 2013 Knox Note and seeking
immediate repayment from Mr. Knox. On December 3, 2013 the Company issued Mr. Knox 261,997 shares of
common stock and cancelled the remaining shares issuable to him under the terms of the Series A Preferred Stock in
full satisfaction of the Purchase Price. Section 402 of the Sarbanes-Oxley Act of 2002 prohibits public U.S.
companies, including us, from extending or maintaining personal loans to its directors or executive officers. The
arrangements with Mr. Knox may have violated this prohibition. The potential violation of the Section 402 may
cause governmental authorities, such as the SEC or other U.S. authorities, to impose certain criminal, civil, and
administrative sanctions or penalties upon us. Similarly, private parties may also bring civil litigations against us for
such violations.
Risks Related to the Market
Recent global economic trends could adversely affect our business, liquidity and financial results.
Recent global economic conditions, including a disruption of financial markets, could adversely affect us, primarily
through limiting our access to capital. In addition, the continuation or worsening of general market conditions in
economies important to our businesses may adversely affect our clients’ level of spending and ability to obtain
financing, leading to us being unable to generate the levels of sales that we require. Current and continued disruption
38
of financial markets could have a material adverse effect on the Company’s business, financial condition, results of
operations and future prospects.
Risks Relating to our Common Stock
We currently have a limited trading volume, which results in higher price volatility for, and reduced liquidity of,
our common stock.
There has been limited trading of our common stock in the U.S since we began trading on the NASDAQ Capital
Market in January 2014. Since 2002, our shares of common stock have been listed for trading on AIM. However,
historically there has been limited volume of trading in our common stock on AIM, which has limited the liquidity
of our common stock on that market. We cannot predict whether or how investor interest in our common stock on
the AIM market might translate to the market price of our common stock or the development of an active trading
market in the U.S. or how liquid that market might become.
Furthermore, if we cease to be listed on AIM or NASDAQ, holders would find it more difficult to dispose of, or to
obtain accurate quotations as to the market value of, our common stock, and the market value of our common stock
would likely decline.
If and when a larger trading market for our common stock develops, the market price of our common stock is
still likely to be highly volatile and subject to wide fluctuations, and you may be unable to resell your shares at or
above the price at which you acquired them.
The market price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in
response to a number of factors that are beyond our control, including, but not limited to:
• variations in our revenue and operating expenses;
• actual or anticipated changes in the estimates of our operating results or changes in stock market analyst
recommendations regarding our ordinary shares, other comparable companies or our industry generally;
• market conditions in our industry and the economy as a whole;
• developments in the financial markets and worldwide or regional economies;
• announcements of innovations or new products or services by us or our competitors;
• announcements by the government relating to regulations that govern our industry;
•
sales of our common stock or other securities by us or in the open market; and
• changes in the market valuations of other comparable companies.
In addition, if the market for biotech stocks or the stock market in general experiences loss of investor confidence,
the trading price of our common stock could decline for reasons unrelated to our business, financial condition or
operating results. The trading price of our shares might also decline in reaction to events that affect other companies
in our industry, even if these events do not directly affect us. Each of these factors, among others, could harm the
value of your investment in our common stock. In the past, following periods of volatility in the market, securities
class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could
result in substantial costs and diversion of management’s attention and resources, which could materially and
adversely affect our business, operating results and financial condition.
Our common stock is listed on two separate stock markets and investors seeking to take advantage of price
differences between such markets may create unexpected volatility in our share price; in addition, investors may
not be able to easily move shares for trading between such markets.
39
Our common stock is already admitted to trading on AIM and the NASDAQ Capital Market. Price levels for our
ordinary shares could fluctuate significantly on either market, independent of our share price on the other market.
Investors could seek to sell or buy our shares to take advantage of any price differences between the two markets
through a practice referred to as arbitrage. Any arbitrage activity could create unexpected volatility on either
exchange with respect to both our share price and the volume of shares available for trading. In addition, holders of
shares in either jurisdiction will not be immediately able to transfer such shares for trading on the other market
without effecting necessary procedures with our transfer agent. This could result in time delays and additional cost
for our shareholders. Further, if we are unable to continue to meet the regulatory requirements for listing on AIM or
NASDAQ, we may lose our listing on AIM or NASDAQ, which could impair the liquidity of our shares.
Our stock price could fall and we could be delisted from the NASDAQ in which case U.S. broker-dealers may be
discouraged from effecting transactions in shares of our common stock because they may be considered penny
stocks and thus be subject to the penny stock rules.
The SEC has adopted a number of rules to regulate “penny stock” that restricts transactions involving stock which is
deemed to be penny stock. Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and
15g-9 under the Securities and Exchange Act of 1934, as amended. These rules may have the effect of reducing the
liquidity of penny stocks. “Penny stocks” generally are equity securities with a price of less than $5.00 per share
(other than securities registered on certain national securities exchanges or quoted on the NASDAQ Stock Market if
current price and volume information with respect to transactions in such securities is provided by the exchange or
system). Our securities have in the past constituted, and may again in the future constitute, “penny stock” within the
meaning of the rules. The additional sales practice and disclosure requirements imposed upon U.S. broker-dealers
may discourage such broker-dealers from effecting transactions in shares of our common stock, which could
severely limit the market liquidity of such shares and impede their sale in the secondary market.
A U.S. broker-dealer selling penny stock to anyone other than an established customer or “accredited investor”
(generally, an individual with net worth in excess of $1,000,000 or an annual income exceeding $200,000, or
$300,000 together with his or her spouse) must make a special suitability determination for the purchaser and must
receive the purchaser’s written consent to the transaction prior to sale, unless the broker-dealer or the transaction is
otherwise exempt. In addition, the “penny stock” regulations require the U.S. broker-dealer to deliver, prior to any
transaction involving a “penny stock”, a disclosure schedule prepared in accordance with SEC standards relating to
the “penny stock” market, unless the broker-dealer or the transaction is otherwise exempt. A U.S. broker-dealer is
also required to disclose commissions payable to the U.S. broker-dealer and the registered representative and current
quotations for the securities. Finally, a U.S. broker-dealer is required to submit monthly statements disclosing recent
price information with respect to the “penny stock” held in a customer’s account and information with respect to the
limited market in “penny stocks”.
Stockholders should be aware that, according to SEC, the market for “penny stocks” has suffered in recent years
from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few
broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged
matching of purchases and sales and false and misleading press releases; (iii) “boiler room” practices involving
high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and
undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same
securities by promoters and broker-dealers after prices have been manipulated to a desired level, resulting in investor
losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although
we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the
market, management will strive within the confines of practical limitations to prevent the described patterns from
being established with respect to our securities.
We have not paid dividends in the past and do not expect to pay dividends for the foreseeable future, and any
return on investment may be limited to potential future appreciation on the value of our common stock.
We currently intend to retain any future earnings to support the development and expansion of our business and do
not anticipate paying cash dividends in the foreseeable future. Our payment of any future dividends will be at the
discretion of our board of directors after taking into account various factors, including without limitation, our
40
financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may
be a party to at the time. To the extent we do not pay dividends, our stock may be less valuable because a return on
investment will only occur if and to the extent our stock price appreciates, which may never occur. In addition,
investors must rely on sales of their common stock after price appreciation as the only way to realize their
investment, and if the price of our stock does not appreciate, then there will be no return on investment. Investors
seeking cash dividends should not purchase our common stock.
Non-U.S. investors may have difficulty effecting service of process against us or enforcing judgments against us
in courts of non-U.S. jurisdictions.
We are a company incorporated under the laws of the State of New Jersey. All of our directors and officers reside in
the United States. It may not be possible for non-U.S. investors to effect service of process within their own
jurisdictions upon our company and our directors and officers. In addition, it may not be possible for non-U.S.
investors to collect from our company, its directors and officers, judgments obtained in courts in such non-U.S.
jurisdictions predicated on non-U.S. legislation.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business or
our market, or if they change their recommendations regarding our stock adversely, our stock price and trading
volume could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities
analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us
change their recommendation regarding our stock adversely, or provide more favorable relative recommendations
about our competitors, our stock price would likely decline. If any analyst who may cover us were to cease coverage
of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in
turn could cause our stock price or trading volume to decline.
The requirements of being a U.S. public company may strain our resources and divert management’s attention.
As a U.S. public company, we will be or become subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended (“Exchange Act”), the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements
of NASDAQ, and other applicable securities rules and regulations. Compliance with these rules and regulations will
increase our legal and financial compliance costs, make some activities more difficult, time-consuming, or costly,
and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file
annual and current reports with respect to our business and operating results.
As a result of disclosure in filings required of a public company, our business and financial condition will
become more visible, which we believe may result in threatened or actual litigation, including by competitors
and other third parties. If such claims are successful, our business and operating results could be harmed,
and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and
resources necessary to resolve them, could divert resources of our management and harm our business and
operating results.
We will incur significant costs as a result of being a publicly traded company and such costs may increase when
we cease to be an emerging growth company.
As a publicly traded company, we will incur legal, accounting and other expenses estimated to range from $150,000
to $250,000 per year, including costs associated with the periodic reporting requirements applicable to a company
whose securities are registered under the Exchange, as well as additional corporate governance requirements,
including applicable requirements under the Sarbanes-Oxley Act and other rules implemented by the SEC. The
expenses incurred by public companies generally for reporting and corporate governance purposes have been
increasing. We expect compliance with these public reporting requirements and associated rules and regulations to
increase our legal and financial costs, particularly after we are no longer an emerging growth company, and to make
some activities more time-consuming and costly, although we are currently unable to estimate these costs with any
degree of certainty. These laws and regulations could also make it more difficult or costly for us to obtain certain
types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy
41
limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and
regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of
directors, our board committees or as our executive officers. Further, if we are unable to satisfy our obligations as a
public company, we could be subject to delisting of our common stock, fines, sanctions and other regulatory action
and, potentially, civil litigation.
The recently enacted JOBS Act reduces certain disclosure requirements for emerging growth companies, thereby
decreasing related regulatory compliance costs. We qualify as an emerging growth company as of the date of this
offering. However, when we cease to be an emerging growth company, we will be unable to take advantage of the
reduced regulatory requirements and any associated cost savings.
Efforts to comply with the applicable provisions of Section 404 of the Sarbanes-Oxley Act will involve significant
expenditures, and non-compliance with Section 404 of the Sarbanes-Oxley Act may adversely affect us and the
market price of our common stock.
Under current SEC rules, beginning with our fiscal year ending December 31, 2014, we will be required to report on
our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, and related rules
and regulations of the SEC; although, as an emerging growth company, we are exempt from the requirement to
provide an auditor attestation to management’s assessment of its internal controls as required by Section 404(b) of
the Sarbanes-Oxley Act. We will be required to review on an annual basis our internal control over financial
reporting, and on a quarterly and annual basis to evaluate and disclose changes in our internal control over financial
reporting. As a result, we expect to incur additional expenses in the near term that may negatively impact our
financial performance and our ability to make distributions. This process also will result in a diversion of
management’s time and attention. We cannot be certain as to the timing of completion of our evaluation, testing and
remediation actions or the impact of the same on our operations, and we may not be able to ensure that the process is
effective or that our internal control over financial reporting is or will be effective in a timely manner. In the event
that we are unable to maintain or achieve compliance with the applicable provisions of Section 404 of the Sarbanes-
Oxley Act and related rules, we and the market price of our common stock may be adversely affected.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Property.
Our corporate headquarters which houses our research and development, engineering, manufacturing, operations and
support personnel, is located in Thorofare, New Jersey, in an office consisting of a total of 17,000 square feet. For
the past ten years, the Company has leased this facility at this location. The current lease term is effective from
January 1, 2013 through December 31, 2019 with an annual rent of $132,000.
We believe our current facilities are sufficient for our current needs and will be adequate, or that suitable additional
or substitute space will be available on commercially reasonable terms, for the foreseeable future.
Item 3. Legal Proceedings.
From time to time, we are a party to litigation and subject to claims incident to the ordinary course of business.
Future litigation may be necessary to defend ourselves and our customers by determining the scope, enforceability
and validity of third party proprietary rights or to establish our proprietary rights.
On November 7, 2013, the Company received a letter from counsel to Rapid Breath Diagnostics, LLC, among others
(collectively, “RBD”) alleging, among other things, the violation of certain rights purported to have been granted
with respect to a purported Distributor and License Agreement. Additionally, RBD claims that the Company has
violated certain rights of RBD with respect to the Company’s Ketone Check and Metron products. RBD is alleging
that it has suffered $250,000 in damages and that it has development and ownership of the market use of Ketone
Check for the management of neurological diseases as well as rights to the name “Metron”. Notwithstanding the
42
allegations set forth by RBD, the purported Distributor and License Agreement was never fully executed by the
parties and thus is not in effect. The Company is vigorously defending itself against RBD’s allegations.
With the exception of the foregoing dispute, the Company is not involved in any disputes and does not have any
litigation matters pending.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
(a) Market Information
We began trading on The NASDAQ Capital Market on January 23, 2014 and have not been previously listed on any
other U.S. market. However, our shares are currently listed on AIM under the symbol “AKR.L”. Our shares began
trading on AIM in May 2002.
The following table shows the high and low market prices, for our shares since we began trading on the NASDAQ
Capital Market.
Quarter ended
Low Price
High Price
January 23, 2014 - March 25, 2014
$
4.47 $
5.52
The following table shows the high and low market prices, for our shares for each fiscal quarter for the two most
recent fiscal years. Market prices for our shares have fluctuated significantly since they were listed on AIM and
trading volume on AIM have been very small in relation to the number of our total outstanding shares. As a result,
the market prices shown in the following table may not be indicative of the market prices at which our shares will
trade after this offering.
Period
Fourth Quarter 2013
Third Quarter 2013
Second Quarter 2013
First Quarter 2013
Fourth Quarter 2012
Third Quarter 2012
Second Quarter 2012
First Quarter 2012
Fourth Quarter 2011
Third Quarter 2011
Second Quarter 2011
First Quarter 2011
High
GBP
USD
£ 6.9108 $ 11.1015 £ 3.6348 $ 5.8389 $
3.9468 6.3686 1.6380 2.6431
2.6988 4.1265 1.6380 2.5045
2.3088 3.6059 1.7160 2.6800
2.2152 3.5669 1.2480 2.0095
1.5600 2.4236 0.9672 1.5026
1.5600 2.4344 1.0608 1.6554
3.9000 6.2264 1.2792 2.0422
5.0700 7.9432 2.9328 4.5948
6.2400 9.7338 3.5100 5.4752
6.8328 10.9906 4.4928 7.2267
10.5300 16.9575 4.6800 7.5367
Low
GBP USD Exchange Rate
1.6064
1.6136
1.5290
1.5618
1.6102
1.5536
1.5605
1.5965
1.5667
1.5599
1.6085
1.6104
* The Company’s stock is listed on the AIM where stock prices are in pounds. All shares prices in the table above
are reflected in dollars after having been converted according to the periods average exchange rates.
(b) Holders
43
As of March 25, 2014, there were approximately 620 holders of record of our common stock. This figure does not
take into account those shareholders whose certificates are held in the name of broker-dealers or other nominees.
44
(c) Dividends
We have never paid any cash dividends on our common shares, and we do not anticipate that we will pay any
dividends with respect to those securities in the foreseeable future. Our current business plan is to retain any future
earnings to finance the expansion development of our business.
(d) Securities Authorized for Issuance under Equity Compensation Plan
The following table shows information with respect this plan as of the fiscal year ended December 31, 2013.
Equity Compensation Plan Information
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)
—
—
—
—
—
—
—
—
—
Plan category
Equity compensation plans approved by
security holders
Equity compensation plans not approved
by security holders
Total
Transfer Agent
Our transfer agent is American Stock Transfer & Trust Company, LLC, 6201 15th Avenue, Brooklyn, NY 11219.
Recent Sales of Unregistered Securities
On December 23, 2013, the Company completed a private placing of depository interests representing 114,072 of its
common stock, no par value per share to institutional and other investors at a price of 430 pence per share
(approximately $7.02 per share)
On December 3, 2013, the Company issued Mr. Thomas Knox 261,997 shares of its common stock pursuant to the
cashless conversion of the Series A Preferred Stock
On June 13, 2013, the Company sold 512,820 shares of its common stock for a purchase price of $1,600,000 to
Chubeworkx.
Rule 10B-18 Transactions
During the years ended December 31, 2013, there were no repurchases of the Company’s common stock by the
Company.
Item 6. Selected Financial Data.
Not applicable.
45
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
THE FOLLOWING DISCUSSION OF OUR PLAN OF OPERATION AND RESULTS OF OPERATIONS
SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND RELATED NOTES
TO THE FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS REPORT. THIS DISCUSSION
CONTAINS FORWARD-LOOKING STATEMENTS THAT RELATE TO FUTURE EVENTS OR OUR
FUTURE FINANCIAL PERFORMANCE. THESE STATEMENTS INVOLVE KNOWN AND UNKNOWN
RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE OUR ACTUAL RESULTS, LEVELS
OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY
FUTURE RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR
IMPLIED BY THESE FORWARD-LOOKING STATEMENTS. THESE RISKS AND OTHER FACTORS
INCLUDE, AMONG OTHERS, THOSE LISTED UNDER “FORWARD-LOOKING STATEMENTS” AND
“RISK FACTORS” AND THOSE INCLUDED ELSEWHERE IN THIS REPORT.
Results of Operations
Management’s Plans and Basis of Presentation
To date, the Company has in large part relied on equity financing to fund its operations, raising $676,068 in private
placements in 2012, $2,345,024 in private placements in 2013 and $13,115,126, net of expenses, in an initial public
offering on the NASDAQ Stock Exchange in 2014. The Company has experienced recurring losses and negative
cash flows from operations, however, the Company’s performance for the year ended December 31, 2013 had
improved. Management’s strategic plans include the following:
• continuing to advance the development and commercialization of the Company’s products, especially those
that utilize MPC Biosensor, PIFA and seraSTAT technologies;
• continuing to strengthen and forge domestic and international relationships with well-established sales
organizations with strong distribution channels in specific target markets for both our currently marketed and
emerging products;
• establishing clinical protocols that support regulatory submissions and publication of data within peer-
reviewed journals; and
• continuing to monitor and implement cost control initiatives to conserve cash.
Despite our plans, the Company expects to continue to incur losses from operations for the near-term and these
losses could be significant for the following reasons:
•
•
some of ABI’s distribution partnerships have been recently established or are in the process of being initiated
and, therefore, consistent and historical ordering patterns have not been instituted;
the Company continues to incur expenses related to the initial commercialization and marketing activities for
METRON and VIVO, and product development (research, clinical trials, regulatory tasks) costs for its
emerging products, Breath PulmoHealth “Check” rapid assays and PIFA PLUSS® Infectious Disease point-
of-care tests); and
•
to expand the use of its clinical laboratory products, the Company may need to invest in additional marketing
support programs to increase brand awareness.
At December 31, 2013, ABI had cash and cash equivalents of $103,634 working capital of $1,415,994,
stockholders’ equity of $4,122,234 and an accumulated deficit of $81,721,126. The Company believes that its
current working capital position will be sufficient to meet its estimated cash needs for at least 12 months following
the consummation of this offering. If the Company does not obtain additional capital as needed, the Company would
46
potentially be required to reduce the scope of its research and development activities. The Company is closely
monitoring its cash balances, cash needs and expense levels.
Revenue
ABI’s total revenue for the year ended December 31, 2013, totaled $3,577,851, a 129% increase over the same
period in 2012. Revenues improved in both of the major product lines, MPC products increased by 375%, PIFA
Heparin/PF4 Rapid Assay increased by 1%. Licensing revenues increased by 1,820%.
The significant increase in MPC product and licensing revenues are attributable to our world-wide distribution
agreement with ChubeWorkx Gurnsey Limited. During the year ended December 31, 2013, ChubeWorkx accounted
for $1,719,340 of our MPC product revenue and an additional $333,333 in licensing fees.
Domestic sales growth of the Company’s PIFA Heparin/PF4 Rapid Assay was relatively flat given the restructuring
of the Company’s selling resources initiated at the start of Q1 2013. The Company’s dedicated technical sales
account executives have moved away from a direct selling model to one that works in tandem with over 300 sales
representatives of ABI’s US distribution partners, Cardinal Health (“Cardinal”) and Fisher HealthCare (“Fisher”).
This reorganization and need to dedicate time and resources to building relationships with distributor representatives
hampered 2013 domestic sales growth but has set the stage for an enhanced selling effort in 2014. In addition, the
Company began shipping its PIFA PLUSS PF4 product line extension to Cardinal in late 2012, but the assay was
just added to Fisher’s distribution agreement in January of 2014; this expansion and relationship-building initiative
have already delivered a measureable increase in product trials and adoptions in the current fiscal year. For the year
ended December 31, 2013, the aforementioned domestic distributors, Cardinal and Fisher, accounted for close to
$900,000 of the total PIFA Heparin/PF4 Rapid Assay as compared to $868,000 for the same period of 2012 and
individually represented 64% and 17%, and of such sales. The remaining $216,000 in sales was generated from
ABI’s direct customers during 2013 as compared to $235,000 in 2012.
Cost of sales for the year ended December 31, 2013 increased by 90% compared to the same period in 2012 to
$1,913,844 from $1,007,951 in 2012. The rise in cost of sales is attributed to the increased consumption of raw
materials and other manufacturing components, the use of temporary labor and sub-contractors due to the significant
increase in Breathalyzer production to meet enhanced sales demand.
Although the total cost of sales increased, ABI’s gross profit margin improved to 47% for the year ended 2013 as
compared to 36% in 2012. The improvement in gross profit margin was derived from a significant increase in
licensing fees ($533,333 in 2013 as compared to $27,778 in 2012) and an increase in production volume which
allowed us to improve efficiency by producing materials in larger lots, reducing setup, quality assurance testing and
other production costs associated with the manufacturing process.
General and Administrative Expenses
General and administrative expenses in the year ended December 31, 2013, totaled $1,524,626, which was a 2%
increase as compared to $1,493,707 for the year ended 2012.
Sales and Marketing Expenses
Sales and marketing expenses in the year ended December 31, 2013, totaled $684,722, which was a 7% increase as
compared to $638,732 for the year ended 2012. The increase was the result of royalties and sales commissions
related to the improved Breathalyzer sales and the restructuring of the commission program for our internal sales
staff to reflect their increasing technical involvement with our distributors for the PIFA Heparin/PF4 Rapid Assay
products.
Research and Development
Research and development expenses in the year ended December 31, 2013 totaled $1,006,800, which was an 11%
increase as compared to $900,380 for the year ended 2012. This increase was due to expanded development of the
47
PIFA Heparin/PF4 Rapid Assay products and the METRON single-use ketone test for the health & wellness
industries.
The following table illustrates research and development costs by project for the years ended December 31, 2013
and 2012, respectively.
Ascorbic Acid
Asthma/pH
BreathScan
BreathScan Pro
CHUBE
COPD
H/PF4
HIV
Ketone/Metron
Lyophilization
Malondialdehyde
PF4 PLUSS
Tri Cholesterol
VIVO/FreD
Total R&D Expenses:
$
2013
2012
- $ 2,049
- 18,393
2,432 20,393
4,751
-
4,751 157,165
- 93,062
376,838 99,782
-
268,960 55,615
71,916 94,500
-
56,965
107,493 83,670
- 2,475
99,501 273,276
$ 1,006,800 $ 900,380
13,193
Other Income and Expense
Other income increased for the year ended December 31, 2013 over the same period in 2012, primarily as a result of
income from two notable events. On June 13, 2013, ABI sold its interest in (en)10, the Company’s exclusive
CHUBE distributor based in the UK, to Chubeworkx for $100,000; a realized gain of $99,710, representing the
difference between the sale price and carried value of the interest. We have determined that the sale of our interest
was an independent transaction, unrelated to the extension of the licensing agreement to include North America.
In addition, the Company recognized $91,286 in other income from the net proceeds gained from ABI’s insurer
demutualizing upon receiving a payment of such amount representing our share of the demutualization as
determined by the insurer.
Other items, including interest and other miscellaneous income amounted to $92,942 for the year ended December
31, 2013 as compared to $10,013 for the year ended December 31, 2012. During 2013, approximately $92,000 in
old trade payables were reversed and the income recognized as miscellaneous income.
Income Taxes
During 2012, the Company was approved by the State of New Jersey to sell a portion of its state tax benefits that
existed as of December 31, 2011, pursuant to the Technology Tax Certificate Transfer Program. The Company
received net proceeds of $167,408 in 2012 as a result of the sale of the tax benefits. The Company did not participate
in the program during 2013.
As of December 31, 2013 and 2012, the Company had Federal net operating loss carry forwards of approximately
$47,600,000 and $46,500,000, respectively, expiring through the year ending December 31, 2033. As of December
31, 2013 and 2012, the Company had New Jersey state net operating loss carry forwards of approximately
$8,100,000 and $5,600,000, respectively, expiring the year ending December 31, 2020.
The principal components of unrecognized deferred tax assets consisted of the following as of December 31, 2013
and December 31, 2012:
48
Deferred Tax Assets
Reserves and other
Net operating loss carry-forwards
Valuation Allowance
Net
Year Ended December 31,
2013
844,729 $
2012
921,068
$
$ 17,165,809 $ 16,149,472
$ (18,010,538 ) $ (17,070,540 )
-
- $
$
The valuation allowance for deferred tax assets as of December 31, 2013 and 2012 was 18,010,538 and
$17,070,540. The change in the total valuation for the years ended December 31, 2013 and 2012 were increases of
$939,998 and $1,108,127. In assessing the realization of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the net
operating losses and temporary differences become deductible. Management considered projected future taxable
income and tax planning strategies in making this assessment. The value of the deferred tax assets was fully offset
by a valuation allowance, due to the current uncertainty of the future realization of the deferred tax assets.
The reconciliation of income taxes using the statutory U.S. income tax rate and the benefit from income taxes for the
years ended December 31, 2013 and December 31, 2012 are as follows.
Tax Rates & Benefits
Statutory U.S. Federal Income Tax Rate
New Jersey State income taxes, net of U.S.
Federal tax effect
Change in Valuation Allowance
Net
Liquidity and Capital Resources
Year Ended December 31
2013
2012
(35.00 )%
(35.00 )%
(5.9 )%
40.9 %
0.00 %
(6.0 )%
35.0 %
(6.0 )%
For the years ended December 31, 2013 and 2012, the Company generated a net loss of $1,526,773 and $2,557,820,
respectively. As of December 31, 2013 and 2012, the Company has an accumulated deficit of $81,721,126 and
$80,194,353 and had cash and cash equivalents totaling $103,634 and $633,022, respectively.
Currently, our primary focus is to expand the domestic and international distribution of our PIFA Heparin/PF4 rapid
assays and support Chubeworkx international distribution of its CHUBE private-labeled breath alcohol detectors.
The Company continues initial commercialization tasks for METRON and VIVO, as well as development activities
for its PIFA PLUSS® Infectious Disease single-use assays, Breath Ketone “Check”, and Breath PulmoHealth
“Check” products, including advancement of the steps required for FDA clearance or CE marking in the EU where
necessary.
We expect to continue to incur losses from operations for the near-term and these losses could be significant as we
incur product development, clinical and regulatory activities, contract consulting and other product development and
commercialization related expenses. We believe that our current working capital position will be sufficient to meet
our estimated cash needs for at least 12 months following the consummation of this offering. The Company is
pursuing additional financing opportunities; however, there can be no assurance that the Company will be able to
obtain sufficient additional financing on terms acceptable to the Company, if at all. We are closely monitoring our
cash balances, cash needs and expense levels. The accompanying financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and
classification of liabilities that might result in the possible inability of the Company to continue as a going concern.
49
We expect that our primary expenditures will be to continue development of PIFA PLUSS® Infectious Disease
single-use assays, Breath Ketone “Check” and Breath PulmoHealth “Check” products and enroll patients in clinical
trials to support performance claims, generate studies in peer-reviewed journals to support product marketing, and
provide data for the FDA 510(k) clearance/CE certifications processes when required. We will also continue to
support commercialization and marketing activities of in-line products (PIFA Heparin/PF4 rapid assays, PIFA
PLUSS® PF4, breath alcohol detectors, METRON and VIVO)) in the US and internationally. Based upon our
experience, clinical trial and related regulatory expenses can be significant costs. Steps to achieve commercialization
of emerging products will be an ongoing and evolving process with expected improvements and possible subsequent
generations being evaluated for commercialized and emerging tests. Should we be unable to achieve FDA clearance
for products that require such regulatory “approval”, develop performance characteristics for rapid tests that satisfy
market needs, or generate sufficient revenue from commercialized products, we would need to rely on other
business or product opportunities to generate revenue and costs that we have incurred for the patents may be deemed
impaired.
We may consider entering into agreements with ISO-certified contract manufacturers which would allow the
Company to meet the regulatory requirements for product sales in large, international markets (e.g. India). We may
also consider acquisitions of development technologies or products, if opportunities arise that we believe fit our
business strategy and would be appropriate from a capital standpoint.
Capital expenditures, primarily for production, laboratory and facility improvement costs for the year ending
December 31, 2014 are anticipated to total approximately $250,000. As per the Company’s lease agreement, the
owner of the facility will be handling the majority of facility upgrades, and we anticipate financing any production
and laboratory capital expenditures through working capital.
The Company may enter into generally short-term consulting and development agreements primarily for testing
services and in connection with clinical trials conducted as part of the Company’s development process which may
include activities related to the development of technical files for FDA 510(k) clearance submissions. Such
commitments at any point in time may be significant but the agreements typically contain cancellation provisions.
We lease our manufacturing facility which also contains our administrative offices. Our current lease was executed
January 1, 2013 and is effective through December 31, 2019. The Company has leased this property from the current
owner since 1997. Due to recent market events that have adversely affected all industries and the economy as a
whole, management has placed increased emphasis on monitoring the risks associated with the current environment,
particularly the recoverability of current assets, the fair value of assets, and the Company’s liquidity. At this point in
time, there has not been a material impact on the Company’s assets and liquidity. Management will continue to
monitor the risks associated with the current environment and their impact on the Company’s results.
Operating Activities
ABI’s net cash consumed by operating activities totaled $2,730,002 during the year ended December 31, 2013. Cash
was consumed by the loss of $1,526,773 less non-operating gains of $282,901 plus a non-cash adjustment of
$354,397 for depreciation and amortization of non-current assets. For the year ended December 31, 2013, decreases
in other receivables and license fees receivables of $450,559 and an increase in trade and other payables of $116,739
provided cash, primarily related to routine changes in operating activities. A net increase in trade receivables, trade
receivables – related parties, inventories and other assets of $1,349,809, a decrease in trade and other payables –
related parties of $51,957 and a net decrease in legal settlements payable and deferred revenue of $440,257
consumed cash from operating activities.
ABI’s net cash consumed by operating activities was $999,166 during the year ended December 31, 2012. Cash was
consumed by the loss of $2,557,820, less non-cash expenses of $561,623 for provisions for bad debt, write-off of
notes receivable, establishment of an inventory reserve for obsolescence and depreciation and amortization of non-
current assets. For the year ended December 31, 2012, decreases in trade and other receivables, and other assets
generated cash of $382,724. There was a $334,178 increase in inventories in the year ended December 31, 2012,
primarily due to increases in the production of CHUBE breath alcohol tubes. At year-end 2012, there was also an
increase of $948,485 in trade and other payables, legal settlement liabilities, and deferred revenue.
50
Critical Accounting Policies
We intend to utilize the extended transition period provided in Securities Act Section 7(a)(2)(B) as allowed by
Section 107(b)(1) of the JOBS Act for the adoption of new or revised accounting standards as applicable to
emerging growth companies. Under the JOBS Act, emerging growth companies may delay adopting new or revised
accounting standards that have different effective dates for public and private companies until such time as those
standards apply to private companies. We have elected to use the extended transition period for complying with
these new or revised accounting standards. Since we will not be required to comply with new or revised accounting
standards on the relevant dates on which adoption of such standards is required for other public companies, our
financial statements may not be comparable to the financial statements of companies that comply with public
company effective dates. If we were to elect to comply with these public company effective dates, such election
would be irrevocable pursuant to Section 107 of the JOBS Act.
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America (US GAAP) requires management to make estimates and assumptions about future events that
affect the amounts reported in the financial statements and accompanying notes. Future events and their effects
cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of
judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the
financial statements. The most significant accounting estimates inherent in the preparation of our financial
statements include estimates associated with revenue recognition, impairment analysis of intangibles and stock-
based compensation.
The Company’s financial position, results of operations and cash flows are impacted by the accounting policies the
Company has adopted. In order to get a full understanding of the Company’s financial statements, one must have a
clear understanding of the accounting policies employed. A summary of the Company’s critical accounting policies
follows:
Trade Receivables, Trade Receivables – Related Party and Allowance for Doubtful Accounts:
The carrying amounts of current trade receivables is stated at cost, net of allowance for doubtful accounts and
approximate their fair value given their short term nature.
The normal credit terms extended to customers ranges between 30 and 90 days. The Company reviews all
receivables that exceed terms and establishes an allowance for doubtful accounts based on management’s
assessment of the collectability of trade and other receivables. A considerable amount of judgment is required in
assessing the amount of allowance. The Company considers the historical level of credit losses, makes judgments
about the credit worthiness of each customer based on ongoing credit evaluations and monitors current economic
trends that might impact the level of credit losses in the future.
Intangible Assets:
Intangible assets primarily represent legal and filing costs associated with obtaining patents on the Company’s new
discoveries or acquiring patents for diagnostic technologies or tests that will enhance the Company’s product
portfolio. The Company has developed or acquired several diagnostic tests that can detect the presence of various
substances in a person’s breath, blood, urine and saliva. Propriety protection for the Company’s products,
technology and process is important to its competitive position. To date, the Company has eleven patents from the
United States Patent Office in effect (7,896,167, 8,097,171, 7,285,246, 7,837,936, 8,003,061, 8,425,859, 5,565,366,
5,827,749, D691,056, D691,057 and D691,058). Other patents are in effect in Australia through the Design Registry
(348,310, 348,311 and 348,312), the Community Trade Mark in the European Union ((OHIM) 002216895-0001,
002216895-0002 and 002216895-0003) and in Japan (4,885,134 and 4,931,821). Patents are in the national phase of
prosecution in many PCT participating countries. Additional proprietary technology consists of numerous different
inventions. The Company intends to file additional patent applications, where appropriate, relating to new products,
technologies and their use in the U.S., European and Asian markets. Management intends to protect all other
intellectual property (e.g. copyrights, trademarks and trade secrets) using all legal remedies available to the
Company.
51
Costs associated with applying for patents are capitalized as patent costs. Once the patents are approved, the
respective costs are amortized over a period of twelve to seventeen years on a straight-line basis. Patent pending
costs for patents that are not approved are charged to operations the year the patent is rejected.
In addition, patents may be purchased from third parties. The costs of acquiring the patent are capitalized as patent
costs if it represents a future economic benefit to the Company. Once a patent is acquired it is amortized over its
remaining life. The Company amortizes these costs over the shorter of the legal life of the patent or its estimated
economic life using the straight-line method. The Company tests intangible assets with finite lives upon significant
changes in the Company’s business environment.
The testing resulted in no patent impairment charges during the years ended December 31, 2013 and 2012
respectively.
Long-Lived Assets:
Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated
impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. When parts
of an item of property, plant and equipment have different useful lives, they are accounted for as separate items
(major components) of property, plant and equipment. Gains and losses on disposal of an item of property, plant and
equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and
equipment and are recognized net within “other income” in profit or loss.
Revenue Recognition
In accordance with FASB ASC 605, the Company recognizes revenue when (i) persuasive evidence of a customer or
distributor arrangement exists, (ii) a retailer, distributor or wholesaler receives the goods and acceptance occurs, (iii)
the price is fixed or determinable, and (iv) the collectability of the revenue is reasonably assured. Subject to these
criteria, the Company recognizes revenue from product sales when title passes to the customer based on shipping
terms. The Company typically does not accept returns nor offer charge backs or rebates except for certain
distributors. Revenue recorded is net of any discount, rebate or sales return.
License fee revenue is recognized on a straight-line basis over the term of the license agreement.
When the Company enters into arrangements that contain more than one deliverable, the Company allocates revenue
to the separate elements under the arrangement based on their relative selling prices in accordance with FASB ASC
605-25.
Stock-based Compensation
FASB ASC 718, Share-Based Payment, defines the fair-value-based method of accounting for stock-based
employee compensation plans and transactions used by the Company to account for its issuances of equity
instruments to record compensation cost for stock-based employee compensation plans at fair value as well as to
acquire goods or services from non-employees. Transactions in which the Company issues stock-based
compensation to employees, directors and consultants and for goods or services received from non-employees are
accounted for based on the fair value of the equity instruments issued. The Company utilizes pricing models in
determining the fair values of options and warrants issued as stock-based compensation. The Black-Scholes model is
utilized to calculate the fair value of equity instruments.
52
Recently Issued and Adopted Accounting Pronouncements
The Company has evaluated all recently issued and adopted accounting pronouncements and believes such
pronouncements do not have a material effect on the Company’s financial statements.
Reclassifications
Certain prior period amounts in the accompanying financial statements have been reclassified to conform to the
presentation used in 2013.
Quantitative and Qualitative Disclosure About Market Risk
We have limited exposure to market risks from instruments that may impact the Balance Sheets, Statements of
Operations, and Statements of Cash Flows. Such exposure is due primarily to changing interest rates.
Interest Rates
The primary objective for our investment activities is to preserve principal while maximizing yields without
significantly increasing risk. This is accomplished by investing excess cash in highly liquid debt and equity
investments of highly rated entities which are classified as trading securities.
Off-Balance Sheet Arrangements
We have no significant known off balance sheet arrangements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We do not hold any derivative instruments and do not engage in any hedging activities.
Item 8. Financial Statements and Supplementary Data.
Our financial statements are contained in pages F-1 through F-27 which appear at the end of this Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
There have been no changes in or disagreements with accountants on accounting and financial disclosure.
Item 9A. Controls and Procedures.
(a) Evaluation of Disclosure and Control Procedures
Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, our principal
executive officer and principal financial officer have concluded that our disclosure controls and procedures (as
defined in Rules 13a-15(c) and 15d-15(e) under the Exchange Act) are effective to ensure that information required
to be disclosed by us in report that we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms
and to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange
Act is accumulated and communicated to our management, including our chief executive officer and chief financial
officer, as appropriate to allow timely decisions regarding required disclosure.
53
(b) Management’s Assessment of Internal Control over Financial Reporting
This annual report does not include a report of management’s assessment regarding internal control over financial
reporting or an attestation report of the Company’s registered public accounting firm due to a transition period
established by rules of the Securities and Exchange Commission for newly public companies.
(c) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
Item 10. Directors, Executive Officers, and Corporate Governance.
Executive Officers and Directors
PART III
The following table sets forth the names, ages and positions of all of the directors and executive officers of the
Company and the positions they hold as of the date hereof. The directors of the Company serve until their successors
are elected and shall qualify. Executive officers are elected by the Board of Directors and serve at the discretion of
the directors.
Name
Thomas A. Nicolette(1)
Age
63 Chief Executive Officer, Director, Principal Financial Officer,
Position
Raymond F. Akers, Jr.
PhD
Gary M. Rauch
Tom Knox**
Brandon Knox**
Gavin Moran**
President
55 Executive Chairman of the Board of Directors, Secretary
58 Controller and Treasurer
72 Independent Director
34 Independent Director
43 Independent Director
1. On March 7, 2013, the Company was informed that effective March 28, 2013, Mr. Nicolette is resigning from
his positions as Chief Executive Officer, President and director of the Company, and all other positions to which he
may have been assigned, regardless of whether he served in such capacity.
** It is intended that these named persons, who will meet the requirements of “independence” under the pertinent
NASDAQ rules.
Set forth below is a brief description of the background and business experience of each of our executive officers
and directors.
Thomas A. Nicolette, age 63, has been our President since February 2007 and our Chief Executive Officer since
April 2008. Mr. Nicolette has been a member of the Board since May 2006. Mr. Nicolette has served as the principal
of Nicolette Consulting Group Limited, a business management consulting firm, since founding it in 1984. From
1997 through 2012 Mr. Nicolette was the Corporate Secretary, Treasurer and director of Sentech EAS Corp., a
designer and manufacturer of electronic security systems for retail, commercial and industrial firms. From 2003
through 2006, Mr. Nicolette was the director of international business development for November AG a developer
of methods of authentication for anti-counterfeiting based in Germany. From 2001 to 2004, Mr. Nicolette served as
Chairman of Exaqt Sa de CV a manufacturer and installer of electronic security systems. From 2001 through 2003,
Mr. Nicolette served as Executive Director of Tri-Mex Group Limited, a developer of monitoring and response
solutions to protect high value or hazardous cargo. Mr, Nicolette served as President, Chief Executive Officer and
54
Director of DNA Technologies, Inc., a holder of patented technology providing solutions for counterfeiting, forgery
and product diversion, from 2000 through 2003. From 1995 through 2001, Mr. Nicolette was the President, Chief
Executive Officer and director of Sentry Technology Corporation which owned Knogo North America, Inc. and
Video Sentry Corporation, designers and manufacturers of electronic articles surveillance systems and closed circuit
television systems worldwide. Also, Mr. Nicolette served as President, Chief Executive Officer and director of
Knogo Corporation, a New York Stock Exchange listed multi company and purveyor of electronic article
surveillance, from 1986 through 1994.
Mr. Nicolette is a graduate of Michigan State University School of Criminal Justice.
The Company believes that Mr. Nicolette’s experience in management of various public companies, capital raising
strategy, financial planning and the U.S. markets will assist the Company’s development and maintenance of a
sound financial strategy going forward.
Raymond F. Akers Jr., Ph.D., age 55, has been Executive Chairman of the Board since December 31, 2009 and
was appointed Secretary on August 5, 2013. Dr. Akers founded the Company in 1989. He has over 25 years of
experience in the diagnostics industry having co-founded Drug Screening Systems, Inc., a publicly listed company,
in 1987, and Akers Medical Technology Inc. in 1984. He was Chief Executive Officer and vice president of research
and development of Drug Screening Systems, Inc. until the sale of that company in 1989 and served as President and
Chief Executive Officer of Akers Medical Technology Inc. until 1987.
Dr. Akers holds a Ph.D. in Neurochemistry from Northwestern University. Dr. Akers has either invented or directed
the research and development of all of the Company’s products and technologies.
The Company believes that Mr. Akers experience in assisting diagnostic companies develop infrastructure;
including but not limited to general management and business development will contribute to the Company’s
development of its own infrastructure and growth as a public company.
Gary M. Rauch, age 58, has over 35 years of experience in accounting, financial and information systems
consulting, discrete manufacturing, distribution and administration. Mr. Rauch has been the Company’s controller
since March, 2010 and was appointed treasurer on August 5, 2013. Mr. Rauch also founded DataSys Solutions, LLC
in 2004 and is currently the managing member. DataSys Solutions LLC specializes in financial and information
systems consulting and technical support services. From July, 2002 through March, 2010, Mr. Rauch was the
controller for Cold Star, Inc., a manufacturer of dairy dispensing equipment and a dairy products distributor. Mr.
Rauch also worked for six years as consulting manager with Deloitte & Touche providing financial system selection,
development and implementation services for their small to middle market clients.
Mr. Rauch has an associate degree from the University of South Carolina.
Thomas J. Knox, age 72, was appointed to our board of directors effective July 1, 2013. Mr. Knox is currently the
Chief Executive Officer of Knox Consulting Group, an advisory and investment firm, as well as Chairman of ORB
Automotive Corporation, Ltd. (appointed in 2011), a company focused on the development and manufacture of
various components used in the Chinese automotive industry including adhesives and rubber molds. In May of 2007,
Mr. Knox was a candidate for Mayor of Philadelphia. From April 2004 to April 2006, Mr. Knox was the Chief
Executive Officer of United Healthcare of Pennsylvania, a division of United Healthcare, Inc., the largest health
insurance provider in the world. From 1999 to 2004, Mr. Knox was Chairman of the Board and Chief Executive
Officer of Fidelity Insurance Group, Inc., a Maryland and Pennsylvania licensed group life and health insurance
provider. From 1988 through June 2000, Mr. Knox was the Chairman of the board and Chief Executive Officer of
Crusader Holding Corporation, a NASDAQ listed company which was the owner of a multi-branch bank serving the
greater Philadelphia area. Mr. Knox is a Chartered Life Underwriter (CLU) and Chartered Financial Consultant
(ChFC), and is active in Philadelphia politics having held the position of Deputy Mayor for the Office of
Management and Productivity from 1993 to 1999. Mr Knox also currently serves as the Chairman of INDECS Corp,
a full service health benefit third party administrator affiliated with Aetna Corporation. From 1999 through the
present, Mr. Knox has been a director of Historic Philadelphia Incorporated. Mr. Knox was a candidate for Governor
or Pennsylvania from 2008 to 2010.
55
The Company believes that Mr. Knox extensive expertise in health care and finance will assist the Company’s
strategic planning and operations.
Brandon Knox, age 34, Mr. Knox has been a wealth advisor at Raymond James in Philadelphia since December
2012. His practice focuses on investment and estate solutions for high net worth families and individuals as well as
public and private institutions both locally and nationally. Prior to joining Raymond James, Mr. Knox was a wealth
advisor at Morgan Stanley from July 2008 to October 2012. From 2006 to 2008, Mr. Knox served as Deputy
Finance Director for the Philadelphia mayoral campaign of his Father, Thomas Knox. In this role he concentrated on
the organization and management of campaign fundraising efforts as well as the planning and execution of
campaign events and off-site functions. Mr. Knox was a Leasing Associate for SSH Realty in Philadelphia from
2005 to 2007 handling lease negotiations for both commercial tenants and landlords. Mr. Knox holds a BS in
Economics from West Chester University and an MBA in Financial Management from Drexel University. Mr. Knox
sits on the Board of Directors of The Committee of Seventy and is a member of the Drexel University Presidents
Leadership Council and the Archdiocese of Philadelphia’s OSD Advisory Council.
Mr. Knox holds a B.S. in Economics from West Chester University and an M.B.A. in Financial Management from
Drexel University’s LeBow College of Business.
The Company believes that Mr. Knox vast experience with corporate finance and financial management will make
him an ideal board member helping the Company to manage its finances as it continues its growth.
Gavin Moran, age 43, has previously worked for Shell International as a Trader, rotating through different
departments including Shell chemicals, marketing, finance and International Trading from 1988 to 1995. Mr. Moran
held a trading role as a beneficial shareholder at Trafigura Ltd, where he was a Trading Manager based in South
Africa and London with responsibility for all the group’s activities and with joint responsibility for trading activities
in East Africa and Far East, from 1995 to 2008. Since April 2010, Mr. Moran has held a trading role as a beneficial
shareholder at Sono International Ltd where he is responsible for the group’s commercial activities, investments and
strategy. He is based in Ghana and London.
The Company believes that the Mr. Moran’s extensive experience in marketing and finance will assist the
Company’s growth strategy and development as a public company.
Chubeworkx Purchase Agreement/Voting Agreement
On June 19, 2013, the Company and Chubeworkx entered into a purchase agreement (the “Chubeworkx Purchase
Agreement”) pursuant to which Chubeworkx purchased 512,820 of the Company’s common stock for an aggregate
purchase price of $1,600,000. As further consideration to induce Chubeworkx to enter into the Chubeworkx
Purchase Agreement, the Company, Chubeworkx and Mr. Tom Knox entered into a voting agreement (the “Voting
Agreement”) whereby Mr. Knox and Chubeworkx agreed to vote their respective shares pursuant to the terms of the
Voting Agreement. Amongst other things,
The Company, Mr. Knox and Chubeworkx agreed as follows:
(i) to take all other actions necessary to ensure that at all times, (a) the size of the Board shall be a maximum of
five (5) directors and (b) the Company’s organizational documents specify that each director has equal rights
to each other director;
(ii) on all matters relating to the election of one or more directors of the Company, each of Mr. Knox and
Chubeworkx shall vote at regular or special meetings of shareholders and so long as each maintains ten
percent (10%) or more of the voting rights with respect to the Company shall be entitled to designate their
own directors (each a “Designee and together the “Designees”); and
56
(iii) Mr. Knox shall vote at a regular or special meeting of stockholders (or by written consent) all of the shares
held by him, and the Company and Mr. Knox shall otherwise take all actions necessary to ensure that at all
times up to the time which is immediately prior to the consummation of this offering, the unanimous approval
of the board of directors of the Company shall be required for any issuance by the Company of any new
shares of capital stock of the Company or any instruments convertible into shares of capital stock of the
Company (including any such issuance of shares of capital stock of the Company in connection with this
offering, including without limitation voting in favor of any amendment to the Certificate of Incorporation or
Bylaws, as necessary.
The Voting Agreement shall terminate and be of no further force or effect immediately prior to the consummation of
this offering; provided, however, that the parties thereto acknowledge and agree that the termination of the Voting
Agreement shall not occur until after the board of directors of the Company has already granted final approval of
this offering and the issuance of shares of common stock in connection therewith.
Pursuant to the Voting Agreement, Chubeworkx was granted the right to appoint one director to the Company’s
board. Chubeworkx nominated Gavin Moran as its representative on the board and Mr. Moran was so appointed
effective July 1, 2013.
Family Relationships
Tom Knox and Brandon Knox are father and son, respectively. There are no other family relationships among any of
our directors or executive officers.
Board Composition and Committees and Director Independence
Our board of directors consists of 4 members: Raymond F. Akers, Jr. PhD, Thomas Knox, Gavin Moran and Mr.
Brandon Knox. The directors will serve until our next annual meeting and until their successors are duly elected and
qualified. The Company defines “independent” as that term is defined in Rule 5605(a)(2) of the NASDAQ listing
standards.
In making the determination of whether a member of the board is independent, our board considers, among other
things, transactions and relationships between each director and his immediate family and the Company, including
those reported under the caption “Related Party Transactions”. The purpose of this review is to determine whether
any such relationships or transactions are material and, therefore, inconsistent with a determination that the directors
are independent. On the basis of such review and its understanding of such relationships and transactions, our board
affirmatively determined that Mr. Tom Knox, Mr. Gavin Moran and Mr. Brandon Knox 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.
Board Committees
The Company has established an audit committee, a compensation committee and a nominating and corporate
governance committee. Each committee has
is available on our website at
www.akersbiosciences.com. Information contained on our website is not incorporated herein by reference.
its own charter, which
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 Tom Knox,
Gavin Moran and Brandon Knox. Each of these Committee members is “independent” within the meaning of Rule
10A-3 under the Exchange Act and the NASDAQ Stock Market Rules. Our board has determined that Tom Knox is
an “audit committee financial expert”, as such term is defined in Item 407(d)(5) of Regulation S-K. Tom Knox
serves as Chairman of our Audit Committee.
57
The Audit Committee oversees our accounting and financial reporting processes and oversee the audit of our
financial statements and the effectiveness of our internal control over financial reporting. The specific functions of
this Committee include, but are not limited to:
•
selecting and recommending to our board of directors the appointment of an independent registered public
accounting firm and overseeing the engagement of such firm;
• approving the fees to be paid to the independent registered public accounting firm;
• helping to ensure the independence of the independent registered public accounting firm;
• overseeing the integrity of our financial statements;
• preparing an audit committee report as required by the SEC to be included in our annual proxy statement;
•
•
resolve any disagreements between management and the auditors regarding financial reporting;
reviewing with management and the independent auditors any correspondence with regulators and any
published reports that raise material issues regarding the Company’s accounting policies;
•
reviewing and approving all related party transactions; and
• overseeing compliance with legal and regulatory requirements.
Compensation Committee
T he members of our Compensation Committee are Tom Knox, Gavin Moran and Brandon Knox. 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. Tom Knox serves as Chairman of our
Compensation Committee.
The Committee’s compensation-related responsibilities include, but are not limited to:
•
•
reviewing and approving on an annual basis the corporate goals and objectives with respect to compensation
for our Chief Executive Officer;
reviewing, approving and recommending to our board of directors on an annual basis the evaluation process
and compensation structure for our other executive officers;
• determining the need for an the appropriateness of employment agreements and change in control agreements
for each of our executive officers and any other officers recommended by the Chief Executive Officer or
board of directors;
• providing oversight of management’s decisions concerning the performance and compensation of other
company officers, employees, consultants and advisors;
•
•
reviewing our incentive compensation and other equity-based plans and recommending changes in such plans
to our board of directors as needed, and exercising all the authority of our board of directors with respect to
the administration of such plans;
reviewing and recommending to our board of directors the compensation of independent directors, including
incentive and equity-based compensation; and
58
•
selecting, retaining and terminating such compensation consultants, outside counsel or other advisors as it
deems necessary or appropriate.
Nominating and Corporate Governance Committee
The members of our Nominating and Corporate Governance Committee are Tom Knox, Gavin Moran and Brandon
Knox. Each such member is “independent” within the meaning of the NASDAQ Stock Market Rules. The purpose
of the Nominating and Corporate Governance Committee is to recommend to the board nominees for election as
directors and persons to be elected to fill any vacancies on the board, develop and recommend a set of corporate
governance principles and oversee the performance of the board. Mr. Gavin Moran serves as Chairman of our
Nominating and Corporate Governance Committee.
The Committee’s responsibilities include:
•
recommending to the board of directors nominees for election as directors at any meeting of stockholders and
nominees to fill vacancies on the board;
• considering candidates proposed by stockholders in accordance with the requirements in the Committee
charter;
• overseeing the administration of the Company’s Code of Ethics;
•
•
•
reviewing with the entire board of directors, on an annual basis, the requisite skills and criteria for board
candidates and the composition of the board as a whole;
the authority to retain search firms to assist in identifying board candidates, approve the terms of the search
firm’s engagement, and cause the Company to pay the engaged search firm’s engagement fee;
recommending to the board of directors on an annual basis the directors to be appointed to each committee of
the board of directors;
• overseeing an annual self-evaluation of the board of directors and its committees to determine whether it and
its committees are functioning effectively; and
• developing and recommending to the board a set of corporate governance guidelines applicable to the
Company.
The Nominating and Corporate Governance Committee may delegate any of its responsibilities to subcommittees as
it deems appropriate. The Nominating and Corporate Governance Committee is authorized to retain independent
legal and other advisors, and conduct or authorize investigations into any matter within the scope of its duties.
Code of Ethics
Our board of directors will adopt a Code of Business Ethics and Conduct (the “Code of Ethics”) which constitutes a
“code of ethics” as defined by applicable SEC rules and a “code of conduct” as defined by applicable NASDAQ
rules. We shall require all employees, directors and officers, including our principal executive officer and principal
financial officer to adhere to the Code of Ethics in addressing legal and ethical issues encountered in conducting
their work. The Code of Ethics requires that these individuals avoid conflicts of interest, comply with all laws and
other legal requirements, conduct business in an honest and ethical manner and otherwise act with integrity.
Management-Non-Executive Director Compensation
Messrs. Thomas Knox and Gavin Moran were appointed to serve as non-executive directors in 2013.
59
Currently, no director of the Company receives any cash compensation for their services as such, but in the future
directors may receive stock options pursuant to the Company’s stock option plan and grants of the Company’s
common stock.
Legal Proceedings
To the best of our knowledge, during the past ten years, none of the following occurred with respect to our present
or former director, executive officer, or employee: (1) any bankruptcy petition filed by or against any business of
which such person was a general partner or executive officer either at the time of the bankruptcy or within two years
prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding
(excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily
enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or
banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the
Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the
judgment has not been reversed, suspended or vacated.
Compliance with Section 16(A) of the Exchange Act
Section 16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who
beneficially own 10% or more of a class of securities registered under Section 12 of the Exchange Act to file reports
of beneficial ownership and changes in beneficial ownership with the SEC. Directors, executive officers and greater
than 10% stockholders are required by the rules and regulations of the SEC to furnish the Company with copies of
all reports filed by them in compliance with Section 16(a).
Based solely on our review of certain reports filed with the Securities and Exchange Commission pursuant to
Section 16(a) of the Securities Exchange Act of 1934, as amended, the reports required to be filed with respect to
transactions in our common stock during the fiscal year ended December 31, 2013, were timely.
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:
insider trading,
• compliance with applicable laws and regulations,
• handling of books and records,
• public disclosure reporting,
•
• discrimination and harassment,
• health and safety,
• conflicts of interest,
• competition and fair dealing, and
• protection of company assets.
A copy of our Code of Business Conduct and Ethics is available without charge, to any person desiring a copy of the
Code of Business Conduct and Ethics, by written request to us at our principal offices at 1090 Fountain Street North,
Cambridge, Ontario, N3H 4R7.
Item 11. Executive Compensation.
The compensation provided to our “named executive officers” for 2013, 2012 and 2011 is set forth in detail in the
Summary Compensation Table and other tables and the accompanying footnotes and narrative that follow this
section. This section explains our executive compensation philosophy, objectives and design, our compensation-
setting process, our executive compensation program components and the decisions made for compensation in
respect of 2012 for each of our named executive officers.
60
Our named executive officers who appear in the 2013 Summary Compensation Table are:
Thomas A. Nicolette
President and Chief Executive Officer
Raymond F. Akers, Jr., PhD
Executive Chairman, Secretary
Gary M. Rauch
Controller, Treasurer
Summary Compensation Table
The following table summarizes information regarding the compensation awarded to, earned by or paid to, our Chief
Executive Officer, and our only other most highly compensated executive officers who earned in excess of $100,000
during 2013, 2012 and 2011.
Cash
Bonus
($)
Stock
Awards
($)
Option
Awards
($)
All Other
Compensation
($)
Yea
r
201
Salary
($)
347,50
Name and Principal Positi
on
Raymond F. Akers, Jr.
PhD
Executive Chairman,
Secretary
Thomas A. Nicolette
Chief Executive Officer,
President(4)
Gary M. Rauch,
Controller, Treasurer
3
0
26,173
201
350,00
2
0
201
345,28
1
5
0
0
201
3
201
2
201
1
201
3
201
2
201
1
0
26,173
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Total
($)
381,47
3
357,80
0
353,08
5
361,17
6
335,00
4
333,50
6
(1
)
7,800
(1
)
7,800
(1
)
7,800
(2
)
335,004
(2
)
335,004
(2
)
333,506
(3
)
67,500
(3
)
67,500
(3
)
41,700
67,500
67,500
41,700
(1) Other compensation for Mr. Akers consisted of a car allowance.
(2) Thomas A. Nicolette is not an employee of the Company and is paid a fee pursuant to his consultant agreement.
Fees paid to Mr. Nicolette are recorded as other compensation.
(3) Gary M. Rauch is not an employee of the Company and is paid a fee pursuant to his consultant agreement. Fees
paid to Mr. Rauch are recorded as other compensation.
(4) On March 7, 2013, the Company was informed that effective March 28, 2013, Mr. Nicolette is resigning from
his positions as Chief Executive Officer, President and director of the Company, and all other positions to which he
may have been assigned, regardless of whether he served in such capacity.
Compensation-Setting Process/Role of Our Compensation Committee
During 2013, our board of directors was responsible for overseeing our executive compensation program,
establishing our executive compensation philosophy and programs, and determining specific executive
61
compensation, including cash and equity. Unless otherwise stated, the discussion and analysis below is based on
decisions by the board of directors.
During 2013, our board of directors considered one or more of the following factors when setting executive
compensation, as further explained in the discussions of each compensation element below:
•
the experiences and individual knowledge of the members of our board of directors regarding executive
compensation, as we believe this approach helps us to compete in hiring and retaining the best possible talent
while at the same time maintaining a reasonable and responsible cost structure;
62
• corporate and/or individual performance, as we believe this encourages our executive officers to focus on
achieving our business objectives;
•
•
the executive’s existing equity award and stock holdings; and
internal pay equity of the compensation paid to one executive officer as compared to another — that is, that
the compensation paid to each executive should reflect the importance of his or her role to the company as
compared to the roles of the other executive officers, while at the same time providing a certain amount of
parity to promote teamwork.
With our transition to being a company listed on NASDAQ, our compensation program following this offering may,
over time, vary significantly from our historical practices. For example, we expect that following this offering, in
setting executive compensation, the new compensation committee may review and consider, in addition to the items
above, factors such as the achievement of predefined milestones, tax deductibility of compensation, the total
compensation that may become payable to executive officers in various hypothetical scenarios, the performance of
our common stock and compensation levels at public peer companies.
Employment Agreements
Effective January 12, 2011, the Company and Mr. Raymond F. Akers Jr., PhD, our Executive Chairman, entered
into a three (3) year (the “Term”) employment agreement (the “Employment Agreement”). Mr. Akers shall be
responsible for the duties attendant with such position as an executive officer of the Company and is required to
devote all of his working time, attention and energies to the affairs of the Company and to use his best efforts to
promote its best interests. Mr. Akers shall be paid a base salary of $350,000 (the “Base Salary”), payable in intervals
consistent with other executive officers of the Company but in no event less than on a monthly basis. Mr. Akers
shall also be entitled to benefits made available to executive officers of the Company, including, but not limited to,
participation in incentive compensation plans, pensions and other retirement plans, hospitalization, surgical, dental,
major medical coverage and short and long term disability, vacation and sick leave. The Company is required to
reimburse of all his reasonable and necessary travel including a car allowance, entertainment or other related
expenses incurred by him in carrying out his duties and responsibilities under the Employment Agreement.
In the event that Mr. Akers’s employment is terminated by the Company for cause (as defined below) the Company
shall pay Mr. Akers his unpaid base salary (excluding bonus compensation) through the month in which the
termination occurs. The term “cause” shall mean the entering of a plea of guilty or nolo contendere by Mr. Akers or
the conviction of Mr. Akers for a felony or any other criminal act involving moral turpitude.
In the event that Mr. Akers’s employment is terminated by the Company for any reason other than death, disability
or cause (as such terms are defined in the Employment Agreement, other than in connection with a change in
control) the Company shall pay Mr. Akers a severance and non-competition payment equal to the sum of (i) an
amount equal to the Base Salary for the remainder of the Term, plus (ii) an amount equal to the Bonus
Compensation earned by the Employee in respect of the last full fiscal year immediately preceding the year of
termination multiplied by the number of months remaining in the Term divided by twelve.
Mr. Akers may elect to end his employment with the Company for any reason at any time. Should Mr. Akers end his
employment with the Company voluntarily prior to the expiration of the Term, he shall be entitled to his unpaid base
salary through the month in which the voluntary termination occurs. For one year following his resignation or
termination, Mr. Akers will not work for or provide any services in any capacity to any competitor and will not
solicit any of the Company’s customers or accounts.
The Compensation Committee is currently working on the terms of a new employment Agreement for Mr. Akers
and until such time as the new agreement can be finalized, Mr. Aker continues to work for the Company under the
terms of his now expired employment agreement.
63
Consulting Agreements
Nicolette Consulting Group Limited
Effective January 12, 2011, the Company and Nicolette Consulting Group Limited (“NGC”) entered into a three (3)
year (the “Term”) consulting services agreement (the “Consulting Agreement”) whereby Mr. Thomas A. Nicolette,
Managing Director of NGC, shall serve the Company in the capacity of Chief Executive Officer. Mr. Nicolette is
responsible for the duties attendant with his position as Chief Executive Officer of the Company and is required to
devote all of his working time, attention and energies to the affairs of the Company and to use his best efforts to
promote its best interests. In consideration for such services, NGC is paid a monthly fee (the “Monthly Fee”) of
$27,916.67. The Company is required to reimburse NGC for all approved, reasonable and necessary travel,
entertainment or other related expenses up to $10,000 per month (the “Approved Expenses”) incurred in carrying
out duties and responsibilities under the Consulting Agreement. NGC must submit appropriate, written, audit-
worthy documentation to the Company supporting Approved Expenses (including receipts) and the Company must
authorize the same, which shall not be unreasonably withheld.
In the event that NGC or Mr. Nicolette is terminated by the Company for cause (as defined below), the Company is
required to pay NGC any unpaid Monthly Fee or Approved Expenses earned but unpaid through the termination
date. The term “cause” shall mean (a) Mr. Nicolette’s conviction or guilty plea admitting guilt of any felony; (ii) the
deliberate engaging by NGC or Mr. Nicolette in fraud or embezzlement which is demonstrably proven and
materially injurious to the Company; or (iii) NGC’s or Mr. Nicolette’s refusal to observe or perform any of the terms
and provisions of the Consulting Agreement, which refusal remains uncured following thirty (30) days prior written
notice from the Company.
In the event that the Consulting Agreement is terminated without cause the Company shall pay NGC any unpaid
Monthly Fee or Approved Expenses earned but unpaid through the termination date.
The Company, NGC and NGC’s personnel, including Mr. Nicolette, have agreed to indemnify each other from and
against any and all claims, liabilities losses, damages, and expenses incurred, arising in connection with any
litigation related to services performed under the Consulting Agreement.
The relationship created by the Consulting Agreement is one of an independent contractor. Neither NGC nor its
personnel, including Mr. Nicolette, are entitled to any rights and or benefits that the Company provides for the
Company’s employees (including any employee pension, health, vacation pay, sick pay or other fringe benefits
offered by the Company under plan or practice) by virtue of the services being rendered by NGC or otherwise.
During the Term, NGC and Mr. Nicolette shall not provide services to any direct competitor of the Company.
In March 2014, the Term of the Consulting Agreement was extended through March 28, 2014.
DataSys Solutions, LLC
Effective January 11, 2012, the Company and DataSys Solutions, LLC (“DS”) entered into a two (2) year (the
“Term”) consulting services agreement (the “DS Consulting Agreement”) whereby Mr. Gary M. Rauch, Managing
Member of DS, shall serve the Company in the capacity of Controller and/or other such positions designated by the
Company’s CEO. Mr. Rauch is responsible for the duties attendant with his position as Controller of the Company
and/or other such positions designated by the Company’s CEO and is required to devote all of his working time,
attention and energies to the affairs of the Company and to use his best efforts to promote its best interests. In
consideration for such services, DS is paid an annual fee of $67,500 in compensation payable in twelve monthly
installments of $5,625 for seventeen (17) days per month devoted to the engagement (the “DS Monthly Fee”). The
Company is required to reimburse DS for all reasonable expenses directly attributable to and incurred in connection
with the engagement with prior approval by the CEO.
The Company may terminate the DS Consulting Agreement for cause (as defined below) by action of its CEO,
without notice and without liability. The term “cause” shall mean (a) Mr. Rauch’s conviction, guilty plea, plea of
nolo contender, or entering into any other plea admitting guilt of any felony; (ii) the deliberate engaging by DS or
Mr. Rauch in fraud or embezzlement which is demonstrably proven and materially injurious to the Company; or (iii)
64
DS’s or Mr. Rauch’s refusal to observe or perform any of the terms and provisions of the DS Consulting Agreement,
or services thereunder.
The Company or DS may terminate the DS Consulting Agreement for any reason without cause, upon ninety (90)
days advance written notice.
In the event that the DS Consulting Agreement is terminated without cause the Company shall pay DS any unpaid
DS Monthly Fee or approved expenses earned but unpaid through the termination date.
The Company, DS and DS’s personnel, including Mr. Rauch, have agreed to indemnify each other from and against
any and all claims, liabilities losses, damages, and expenses incurred, arising in connection with any litigation
related to services performed under the DS Consulting Agreement.
During the Term, DS and Mr. Rauch shall not provide services to any direct competitor of the Company.
Outstanding Equity Awards at Fiscal Year-End 2013
There were no outstanding equity awards at Fiscal Year-End 2013.
DIRECTOR COMPENSATION
The following sets forth the compensation awarded to, earned by, or paid to the named director by us during the year
ended December 31, 2013.
Fees earned or
paid in cash
($)
Stock
awards
($)
Option
awards
($)
Non-equity incentive plan
compensation
($)
Change in pension value and
nonqualified deferred compensation
earnings
All other
compensation
($)
Total
($)
Name
Thomas
Nicolette(4)
Raymond
Akers Jr.
Gavin
Moran(1)
Tom Knox
(2)
Brandon
Knox(3)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
(1) Effective July 1, 2013, Mr. Gavin Moran was appointed as Director.
(2) Effective July 1, 2013, Mr. Tom Knox was appointed as Director.
(3) Effective January 23, 2014, Mr. Brandon Knox was appointed as Director.
(4) Effective, March 28, 2013, Mr. Nicolette is resigning from his positions as Chief Executive Officer,
President and director of the Company, and all other positions to which he may have been assigned,
regardless of whether he served in such capacity.
Item 13. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The following table sets forth, as of December 30, 2013, 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
65
• 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 28, 2014.
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 prior to this offering is based on 4,894,837 shares of our
common stock issued and outstanding as of March 25, 2014.
Common stock subject to stock options currently exercisable or exercisable within 60 days of December 30, 2013,
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.
Voting Rights
held Prior to
this Offering
Percentage of
Ownership
as of
September 30
Percentage
Immediately
following the
Offering
Name of Beneficial Owner:
5% Stockholders:
Chubeworkx Guernsey Limited(1)
Act Capital Management, LLLP
Named Executive Officers and Directors:
Thomas A. Nicolette
Raymond F. Akers, Jr. Phd
Tom Knox
Brandon Knox
Gavin Moran
Gary M. Rauch
All executive officers and directors as a group (6
persons)
512,820
280,100
38,464
—
358,150
48,076
—
480
23.66 %
-
1.77 %
16.52 %
2.22 %
—
0.02 %
445,170
20.54 %
10.5 %
5.7 %
0.8 %
7.3 %
1.0 %
—
0.0 %
9.1 %
(1) Mark Chasey is the Chairman of Chubeworkx Guernsey Limited and has beneficial ownership of the
shares.
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.
66
On September 14, 2012, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”)
with Mr. Thomas J. Knox. Pursuant to the Purchase Agreement, Mr. Knox purchased 192,305 shares of the
Company’s common stock for a purchase price of $450,000. Additionally, Mr. Knox received 10,000,000 shares of
the Company’s Series A Cumulative Preferred Stock (the Series A Preferred Stock”) in consideration for a $225,000
promissory note issued to the Company by Mr. Knox. The note bears interest at the rate of 3% per annum. The
Series A Preferred Stock pays a $0.00135 dividend per annum. The Series A Preferred Stock were convertible at any
time into 320,512 common stock, at the rate of 0.0320512 common stock for each preferred share, for an additional
payment of $0.05 per converted share.
On June 12, 2013, the Company entered into a purchase agreement with Chubeworkx Guernsey Limited
(“Chubeworkx”) whereby the Company sold all of its equity interest, 20 ordinary shares, in (EN)10 (Guersney)
Limited to Chubeworkx for a purchase price of $100,000.
On December 19, 2012, Chubeworkx placed an order for 3,500,000 Breathalyzers for a purchase price of
$1,050,000 or $0.30 per unit. Additional orders were received in 2013 totaling 4,620,000 units. As of December 31,
2013, 5,000,000 units have shipped and 2,500,000 units are packaged awaiting delivery instructions. During 2013,
the Company had product sales of $1,719,340 to Chubeworkx and recognized $333,333 of licensing fees. The
Company received $519,964 during 2013 and has an account receivable of $1,209,388 from Chubeworkx as of
December 31, 2013. The Company received an additional payment of $500,000 from Chubeworkx on March 7,
2014.
On November 15, 2013, Mr. Knox converted all 10,000,000 shares of Series A Preferred Stock into 320,512 shares
of common stock. In order to satisfy the required one time payment of $500,000 (the “Purchase Price”) due upon
conversion as set forth in the Purchase Agreement, Mr. Knox issued a promissory note in favor of the Company for
the principal aggregate amount of $500,000 (the “2013 Knox Note”). The 2013 Knox Note required payment of the
principal in full prior to maturity date of November 15, 2014 (the “Maturity Date”) with interest on the unpaid
principal balance at the rate of the thirty day average LIBOR per annum commencing on November 15, 2013. The
320,512 shares of common stock were to be held by the Company as collateral until all amounts owing under the
2013 Knox Note were paid in full.
On December 3, 2013 the Company entered into a letter agreement with the Knox whereby the 2013 Knox Note was
cancelled and the Company issued Mr. Knox 261,997 shares of common stock and cancelled the remaining shares
issuable to him under the terms of the Series A Preferred Stock in full satisfaction of the Purchase Price.
Item 14. Principal Accounting Fees and Services.
The following table sets forth the aggregate fees billed for each of the last two fiscal years for professional services
rendered by the principal accountant for the audit of the Company's annual financial statements and review of
financial statements included in the Company's quarterly reports or services that are normally provided by the
accountant in connection with statutory and regulatory filings or engagements for those fiscal years.
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees (1)
TOTAL
2013
2012
$
$
$
$
$
50,340 $
39,500 $
7,500 $
22,900 $
120,240 $
50,490
-
7,800
-
58,290
(1) All other fees includes services performed in association with document reviews during the preparation of the
Company’s S/1 filing.
67
PART IV
Item 15. Exhibits, Financial Statement Schedules.
Exhibit
Number
Description of Exhibit
1.1
3.1
3.2
3.3
3.4
3.5
4.1
5.1
10.1
10.2
10.3
10.4
Form of Underwriting Agreement (incorporated by reference to Exhibit 1.1 to the to the Company’s
Registration Statement on Form S-1 filed with the Securities Exchange Commission on November 18,
2013).
Amended & Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the
Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on
August 7, 2013).
Amendment to Certificate of Incorporation dated June 2, 2008 (incorporated herein by reference to
Exhibit 3.2 to the Company’s Registration Statement on Form S-1 filed with the Securities and
Exchange Commission on August 7, 2013).
Amendment to Certificate of Incorporation, Certificate of Designation of Series A Preferred Stock, dated
September 21, 2012. (incorporated herein by reference to Exhibit 3.3 to the Company’s Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on August 7, 2013).
Amendment to Certificate of Incorporation dated January 22, 2013 (incorporated herein by reference to
Exhibit 3.4 to the Company’s Registration Statement on Form S-1 filed with the Securities and
Exchange Commission on August 7, 2013).
Amended and Restated By-laws dated August 5, 2013(incorporated herein by reference to Exhibit 3.5 to
the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission
on August 7, 2013).
Form of Underwriters’ Warrant (incorporated by reference to Exhibit 4.1 to the to the Company’s
Registration Statement on Form S-1 filed with the Securities Exchange Commission on November 18,
2013).
Opinion of Lucosky Brookman LLP (incorporated by reference to exhibit 5.1 to the Company’s
Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December
30, 2013).
Employment Agreement, dated January 12, 2011 between Raymond F. Akers, Jr. Phd and Akers
Biosciences, Inc. and letter of amendment dated August 3, 2013. (incorporated herein by reference to
Exhibit 10.1 to the Company’s Registration Statement on Form S-1 filed with the Securities and
Exchange Commission on August 7, 2013).
Consulting Agreement between Akers Biosciences, Inc. and Nicolette Consulting Group, dated January
12, 2011(incorporated herein by reference to Exhibit 10.2 to the Company’s Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on August 7, 2013).
Consulting Agreement between Akers Biosciences, Inc. and DataSys Solutions, LLC, dated January 1,
2012. (incorporated herein by reference to Exhibit 10.3 to the Company’s Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on August 7, 2013).
Amended License and Supply Agreement by and between Akers Biosciences, Inc. and Chubeworkx
Guernsey Limited (as successor to Sono International Limited) (“Chubeworkx”), (EN)10 (Guernsey)
Limited (formerly BreathScan International (Guernsey) Limited) and (EN)10 Limited (formerly
BreathScan International Limited), dated June 12, 2013 (incorporated herein by reference to Exhibit 10.4
to the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange
Commission on August 7, 2013).
10.5
Share Purchase Agreement by and between Akers Biosciences, Inc. and Chubeworkx, dated June 12,
2013. (incorporated herein by reference to Exhibit 10.5 to the Company’s Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on August 7, 2013)
68
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
Voting Agreement by and between Akers Biosciences, Inc., Chubeworkx and Thomas J. Knox, dated
June 12, 2013(incorporated herein by reference to Exhibit 10.6 to the Company’s Registration Statement
on Form S-1 filed with the Securities and Exchange Commission on August 7, 2013).
Subscription Agreement by and between Akers Biosciences, Inc. and Chubeworkx, dated June 12,
2013(incorporated herein by reference to Exhibit 10.7 to the Company’s Registration Statement on Form
S-1 filed with the Securities and Exchange Commission on August 7, 2013).
Subscription Agreement by and between Akers Biosciences, Inc. and Thomas J. Knox, dated September
14, 2012(incorporated herein by reference to Exhibit 10.8 to the Company’s Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on August 7, 2013).
Promissory Note entered into by Thomas J Knox issued in favor of Akers Biosciences, Inc., dated
September 14, 2012. (incorporated herein by reference to Exhibit 10.9 to the Company’s Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on August 7, 2013).
License and Supply Agreement by and among the Company, Sono International Limited (“SIL”),
BreathScan International (Guersney) Limited and BreathScan International Limited, dated June 19, 2012
(incorporated herein by reference to Exhibit 10.10 to the Company’s Registration Statement on Form S-
1/A filed with the Securities and Exchange Commission on October 8, 2013).
Distribution Agreement by and among the Company and Fisher Healthcare, and Amendment thereto,
dated June 15, 2010 and May 1, 2012, respectively. (incorporated herein by reference to Exhibit 10.11 to
the Company’s Registration Statement on Form S-1/A filed with the Securities and Exchange
Commission on October 8, 2013).
National Brand Distribution Agreement by and among the Company and Cardinal Health 2000, and
Amendment thereto, dated May 1, 2007 and June 1, 2008, respectively. (incorporated herein by
reference to Exhibit 10.12 to the Company’s Registration Statement on Form S-1/A filed with the
Securities and Exchange Commission on October 8, 2013).
Promissory Note entered into by Thomas J. Knox issued in favor of Akers Biosciences, Inc, dated
November 15, 2013(incorporated herein by reference to Exhibit 10.13 to the Company’s Registration
Statement on Form S-1/A filed with the Securities and Exchange Commission on November 18, 2013).
2013 Incentive Stock and Award Plan (incorporated herein by reference to Exhibit 10.14 to the
Company’s Registration Statement on Form S-1/A filed with the Securities and Exchange Commission
on December 6, 2013).
Form of Nonqualified Stock Option Agreement (Non-Employee) (incorporated herein by reference to
Exhibit 10.15 to the Company’s Registration Statement on Form S-1/A filed with the Securities and
Exchange Commission on December 6, 2013).
Form of Nonqualified Stock Option Agreement (Employee) (incorporated herein by reference to Exhibit
10.16 to the Company’s Registration Statement on Form S-1/A filed with the Securities and Exchange
Commission on December 6, 2013).
Form of Restricted Stock Agreement (incorporated herein by reference to Exhibit 10.17 to the
Company’s Registration Statement on Form S-1/A filed with the Securities and Exchange Commission
on December 6, 2013).
Form of Incentive Stock Option (incorporated herein by reference to Exhibit 10.18 to the Company’s
Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on December
6, 2013).
Letter Agreement, dated December 3, 2013, by and between the Company and Mr. Tom Knox
(incorporated herein by reference to Exhibit 10.19 to the Company’s Registration Statement on Form S-
1/A filed with the Securities and Exchange Commission on December 6, 2013).
17.1
Letter of Resignation from Thomas Nicolette dated March 7, 2014 (incorporated herein by reference to
Exhibit 17.1 to the Company’s Current Report on Form 8-K filed March 12, 2014).
31.1* Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-
69
Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a))
31.2*
32.1*
32.2*
Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a))
Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
* Filed herewith
Unless otherwise indicated, exhibits were previously filed with this registration statement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 28, 2014
Date: March 28, 2014
AKERS BIOSCIENCES, INC.
By:
/s/ Raymond Akers Jr.
Name: Raymond Akers Jr.
Title: Executive Chairman
(Principal Executive Officer)
By:
/s/ Raymond Akers Jr
Name: Raymond Akers Jr.
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name
Position
Date
/s/ Thomas Nicolette
Thomas Nicolette
/s/ Raymond Akers Jr.
Raymond Akers Jr.
/s/Thomas Knox
Thomas Knox
/s/ Brandon Knox
Brandon Knox
/s/ Gavin Moran
Gavin Moran
Chief Executive Officer, President
and Director
March 28, 2014
Executive Chairman
March 28, 2014
Director
Director
Director
March 28, 2014
March 28, 2014
March 28, 2014
70
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Akers Biosciences, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Akers Biosciences, Inc. and Subsidiaries (the
"Company") as of December 31, 2013 and 2012, and the related consolidated statements of operations,
stockholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such an opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Akers Biosciences, Inc. and Subsidiaries at December 31, 2013 and 2012, and the
consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Morison Cogen LLP
Bala Cynwyd, Pennsylvania
March 28, 2014
F-1
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2013 and 2012
ASSETS
Current Assets
Cash and Cash Equivalents
Trade Receivables (net)
Trade Receivables - Related Party
Other Receivables
Note Receivable - Related Parties
License Fee Receivable - Related Party
Inventories (net)
Other Current Assets
Total Current Assets
Non-Current Assets
Property, plant and equipment, net
Intangible assets, net
Other Assets
Total Non-Current Assets
Total Assets
LIABILITIES
Current Liabilities
Trade and Other Payables
Other Payables - Related Party
Short-Term Notes Payable - Related Party
Deferred Revenue - Related Party
Total Current Liabilities
Total Liabilities
EQUITY
Convertible Preferred Stock, No par value, 50,000,000 shares authorized, 0 and
10,000,000 shares issued and outstanding as of December 31, 2013 and 2012
Common Stock, No par value, 500,000,000 shares authorized, 2,167,837 and
1,278,948 issued and outstanding as of December 31, 2013 and 2012
Accumulated Deficit
Total Equity
Total Liabilities and Equity
2013
2012
$
103,634 $
118,404
1,209,388
748,962
-
-
1,025,104
163,890
633,022
101,213
10,013
4,497
225,000
450,000
987,853
67,898
3,369,382
2,479,496
267,321
2,434,637
4,282
240,014
2,693,209
4,572
2,706,240
2,937,795
$ 6,075,622 $ 5,417,291
$ 1,000,413 $ 1,082,504
58,542
-
972,222
6,586
307,500
638,889
1,953,388
2,113,268
1,953,388
2,113,268
-
225,000
85,843,360 83,273,376
(81,721,126 ) (80,194,353 )
4,122,234
3,304,023
$ 6,075,622 $ 5,417,291
The accompanying notes are an integral part of these consolidated financial statements
F-2
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 2013 and 2012
Revenues:
Product Revenue
Product Revenue - Related party
License Revenue
License Revenue - Related party
Total Revenue
Cost of Sales:
Product Cost of Sales
Gross Profit
Administrative Expenses
Administrative Expenses - Related parties
Sales and Marketing Expenses
Research and Development Expenses
Amortization of Non-Current Assets
Loss from Operations
Other Income/Expenses
Foreign Currency Transaction (Income)/Expense
Gain on sale of equity investment - Related party
Gain from demutualization of insurance carrier
Other Income
Total Other income
Loss Before Income Taxes
Income Tax Benefit
Net Loss
Basic & diluted loss per common share
2013
2012
$ 1,325,178 $ 1,523,650
12,673
-
27,778
1,564,101
1,719,340
200,000
333,333
3,577,851
(1,913,844 )
(1,007,951 )
1,664,007
556,150
1,095,950
428,676
684,720
1,006,800
258,572
1,009,803
483,904
638,732
900,380
258,572
(1,810,711 )
(2,735,241 )
57
(99,710 )
(91,286 )
(92,999 )
(283,938 )
(6,859 )
-
-
(3,154 )
(10,013 )
(1,526,773 )
(2,725,228 )
-
167,408
$ (1,526,773 ) $ (2,557,820 )
$
(0.96 ) $
(2.24 )
Weighted average basic & diluted common shares outstanding
1,596,722
1,143,058
The accompanying notes are an integral part of these consolidated financial statements
F-3
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholder's Equity
Years ended December 31, 2013 and 2012
Convertible
Preferred
Common
Stock
Stock
Accumulated
Deficit
Total
Equity
Balance at December 31, 2011
$
- $ 82,822,308 $ (77,636,533 ) $ 5,185,775
Net loss for the year
Issuance of shares
-
-
(2,557,820 )
(2,557,820 )
225,000
451,068
-
676,068
Balance at December 31, 2012
225,000 83,273,376 (80,194,353 )
3,304,023
Net loss for the year
-
-
(1,526,773 )
(1,526,773 )
Conversion of Series A Preferred Shares
Issuance of shares, net of offering costs
(225,000 )
-
225,000
2,344,984
-
-
-
2,344,984
Balance at December 31, 2013
$
- $ 85,843,360 $ (81,721,126 ) $ 4,122,234
The accompanying notes are an integral part of these consolidated financial statements
F-4
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Consolidated Cash Flow Statements
Years ended December 31, 2013 and 2012
Cash flows from operating activities
Net loss for the year
Adjustments to reconcile net loss to net cash used by operating activities:
Gain from demutualization of insurer
Gain on sale of equity investment - related party
Reversal of old trade payables
Depreciation and amortization of non-current assets
Provisions for bad debts
Provision for inventory obsolesence
Write-off of note receivable
Changes in assets and liabilities
(Increase)/Decrease in trade receivables
(Increase)/decrease in trade receivables - related party
Decrease in other receivables
Decrease in license fees receivable - related party
Increase in inventories
(Increase)/decrease in other assets
Increase in trade and other payables
Increase/(decrease) in other payables - related party
Increase/(decrease) in legal settlement liabilities
Increase/(decrease) in deferred revenue - related party
2013
2012
$
(1,526,773 ) $
(2,557,820 )
(91,286 )
(99,710 )
(91,905 )
354,397
-
-
-
(17,191 )
(1,199,375 )
559
450,000
(37,251 )
(95,992 )
116,739
(51,957 )
(106,924 )
(333,333 )
-
-
-
371,676
9,047
32,000
148,900
95,287
11,829
258,939
-
(334,178 )
16,669
281,422
37,917
106,924
522,222
Net cash used in operating activities
(2,730,002 )
(999,166 )
Cash flows from investing activities
Purchases of property, plant and equipment
Proceeds from sale of equity investment - related party
Proceeds from demutualization of insurance carrier
Net cash provided from/(used in) investing activities
Cash flows from financing activities
Proceeds from note receivable - related party for Series A Convertible
Preferred Stock
Proceeds from short-term note payable - related party
Proceeds from issuance of common stock
Net cash provided by financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental Disclosure of Cash Flow Information
Non-cash financing activities
Other receivable for proceeds of London Private Placement
Issuance of convertible preferred stock for note receivable - related party
License fee receivable - related party included in deferred revenue - related party
(123,132 )
100,000
91,286
(11,685 )
-
-
68,154
(11,685 )
225,000
307,500
1,599,960
-
-
451,068
2,132,460
451,068
(529,388 )
633,022
103,634 $
(559,783 )
1,192,805
633,022
745,024 $
- $
- $
-
225,000
450,000
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements
F-5
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 – Nature of Business
(a) Reporting Entity
The accompanying audited financial statements have been prepared by Akers Biosciences, Inc.
(“ABI” or the “Company”), a company domiciled in the United States of America. The address of
the Company’s registered office is 201 Grove Road, West Deptford, New Jersey, 08086. The
Company is incorporated in the United States of America under the laws of the State of New
Jersey.
The consolidated financial statements include two dormant subsidiaries, Akers Acquisition Sub,
Inc. and Bout Time Marketing Corporation. All material intercompany transactions have been
eliminated upon consolidation.
(b) Nature of Business
The Company commenced research and development operations in September 1989, and until
2005 had devoted substantially all its efforts to establishing the new business.
The Company’s primary focus is the development and sale of disposable diagnostic testing
devices that can be performed in minutes, to facilitate time sensitive therapeutic decisions. The
Company’s main products are a disposable breathalyzer test that measures the blood alcohol
content of the user, a rapid test detecting the antibody causing an allergic reaction to Heparin and a
disposable breathalyzer test that measures Free Radical activity in the human body. When the
Company enters into an agreement with a new distributor it requires an upfront licensing fee to be
paid for the right to sell the Company’s products in specific markets.
Note 2 - Basis of Presentation
(a) Statement of Compliance
The consolidated financial statements of the Company are prepared in U.S. Dollars and in
accordance with accounting principles generally accepted in the United States of America (US
GAAP).
The Company is an emerging growth company as the term is used in The Jumpstart Our Business
Startups Act enacted on April 5, 2012 and has elected to comply with certain reduced public
company reporting requirements.
(b) Use of Estimates and Judgments
The preparation of financial statements in conformity with US GAAP requires management to
make judgments, estimates and assumptions that affect the application of accounting policies and
the reported amounts of assets, liabilities, income and expenses. Actual results may differ from
these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognized in the period in which the estimates are revised
and in any future periods affected. In particular, information about significant areas of estimation,
uncertainty and critical judgments in applying accounting policies that have the most significant
effect on the amounts recognized in the financial statements is included in the following notes for
revenue recognition, preferred stock, allowances for doubtful accounts, inventory write-downs,
impairment of intangible assets and valuation of share based payments.
F-6
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(c) Functional and Presentation Currency
These consolidated financial statements are presented in U.S. Dollars, which is the Company’s
functional currency. All financial information presented in U.S. Dollars has been rounded to the
nearest dollar. Foreign Currency Transaction Gains or Losses, resulting from loans and cash
balances denominated in Foreign Currencies, are recorded in the statement of operations.
(d) Comprehensive Income
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. Since the Company has
no items of other comprehensive income (loss), comprehensive income (loss) is equal to net
income (loss).
Note 3 - Significant Accounting Policies
(a) Cash and Cash Equivalents
Cash and cash equivalents comprise cash balances. The Company considers all highly liquid
investments, which include short-term bank deposits (up to 3 months from date of deposit) that are
not restricted as to withdrawal date or use, to be cash equivalents. Bank overdrafts are shown as
part of trade and other payables in the balance sheet.
(b) Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, receivables and trade
and other payables. The carrying value of cash and cash equivalents, trade receivables and trade
and other payables approximate their fair value because of their short maturities. The Company
believes the carrying amount of its note receivable and notes payable approximates their fair value
based on rates and other terms.
(c) Trade Receivables, Trade Receivables – Related Party and Allowance for Doubtful Accounts
The carrying amounts of current trade receivables is stated at cost, net of allowance for doubtful
accounts and approximate their fair value given their short term nature.
F-7
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The normal credit terms extended to customers ranges between 30 and 90 days. The Company
reviews all receivables that exceed terms and establishes an allowance for doubtful accounts based
on management’s assessment of the collectability of trade and other receivables. A considerable
amount of judgment is required in assessing the amount of allowance. The Company considers the
historical level of credit losses, makes judgments about the credit worthiness of each customer
based on ongoing credit evaluations and monitors current economic trends that might impact the
level of credit losses in the future.
As of December 31, 2013 and 2012, allowances for doubtful accounts were $- and $-. Allowances
charged for doubtful accounts amounted to $- and $9,047 for the years ended December 31, 2013
and 2012.
(d) Concentration of Credit Risk
The Company is exposed to credit risk in the normal course of business primarily related to trade
receivables and cash and cash equivalents.
Substantially all of the Company’s cash and cash equivalents are maintained with Bank of
America, NA. The funds are insured by the FDIC up to a maximum of $250,000, but are otherwise
unprotected. The Company placed $99,418 and $630,337 with this institution as of December 31,
2013 and 2012. No losses have been incurred in these accounts.
Concentration of credit risk with respect to trade receivables exists as approximately 85% of its
revenue is generated by three customers. These customers accounted for 97% of trade receivables
as of December 31, 2013. One customer generated 49% of its revenue and accounted for 40% of
trade receivables as of December 31, 2012. In order to limit such risks, the Company performs
ongoing credit evaluations of its customers’ financial condition.
(e) Inventories
Inventories are measured at the lower of cost or market. The cost of inventories is based on the
weighted-average principle, and includes expenditures incurred in acquiring the inventories,
production or conversion costs and other costs incurred in bringing them to their existing location
and condition. In the case of manufactured inventories and work in progress, costs include an
appropriate share of production overheads based on normal operating capacity.
(f) Property, Plant and Equipment
Items of property, plant and equipment are measured at cost less accumulated depreciation and
accumulated impairment losses. Costs include expenditures that are directly attributable to the
acquisition of the asset.
Gains and losses on disposal of an item of property, plant and equipment are determined by
comparing the proceeds from disposal with the carrying amount of property, plant and equipment
and are recognized within “other income” in the statement of operations.
F-8
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Depreciation is recognized in profit and loss on the accelerated basis over the estimated useful
lives of the property, plant and equipment. Leased assets are depreciated over the shorter of the
lease term or their useful lives.
The estimated useful lives for the current and comparative periods are as follows:
Plant and equipment
Furniture and fixtures
Computer equipment & software
Useful Life
(in years)
5-12
5-10
3-5
Depreciation methods, useful lives and residual values are reviewed at each reporting date.
(g) Intangible Assets
(i) Patents and Trade Secrets
The Company has developed or acquired several diagnostic tests that can detect the presence
of various substances in a person’s breath, blood, urine and saliva. Propriety protection for the
Company’s products, technology and process is important to its competitive position. To date,
the Company has eleven patents from the United States Patent Office in effect (7,896,167,
8,097,171, 7,285,246, 7,837,936, 8,003,061, 8,425,859, 5,565,366, 5,827,749, D691,056,
D691,057 and D691,058). Other patents are in effect in Australia through the Design Registry
(348,310, 348,311 and 348,312), the Community Trade Mark in the European Union
((OHIM) 002216895-0001, 002216895-0002 and 002216895-0003) and in Japan (4,885,134
and 4,931,821). Patents are in the national phase of prosecution in many Patent Cooperation
Treaty participating countries. Additional proprietary technology consists of numerous
different inventions. The Company intends to file additional patent applications, where
appropriate, relating to new products, technologies and their use in the U.S., European and
Asian markets. Management intends to protect all other intellectual property (e.g. copyrights,
trademarks and trade secrets) using all legal remedies available to the Company.
(ii) Patent Costs
Costs associated with applying for patents are capitalized as patent costs. Once the patents are
approved, the respective costs are amortized over their estimated useful lives (maximum of 17
years) on a straight-line basis. Patent pending costs for patents that are not approved are
charged to operations the year the patent is rejected.
In addition, patents may be purchased from third parties. The costs of acquiring the patent are
capitalized as patent costs if it represents a future economic benefit to the Company. Once a
patent is acquired it is amortized over its remaining useful life.
(iii) Other Intangible Assets
Other intangible assets that are acquired by the Company, which have definite useful lives,
are measured at cost less accumulated amortization and accumulated impairment losses.
F-9
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(iv) Amortization
Amortization is recognized on a straight-line basis over the estimated useful lives of
intangible assets, other than goodwill, from the date that they are available for use. The
estimated useful lives for the current and comparative periods are as follows:
Patents and trademarks
Customer lists
(h) Recoverability of Long Lived Assets
Useful Life
(in years)
12-17
5
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.
(i) Revenue Recognition
In accordance with FASB ASC 605, the Company recognizes revenue when (i) persuasive
evidence of a customer or distributor arrangement exists, (ii) a retailer, distributor or wholesaler
receives the goods and acceptance occurs, (iii) the price is fixed or determinable, and (iv) the
collectability of the revenue is reasonably assured. Subject to these criteria, the Company
recognizes revenue from product sales when title passes to the customer based on shipping terms.
The Company typically does not accept returns nor offer charge backs or rebates except for certain
distributors. Revenue recorded is net of any discount, rebate or sales return. No accrual for
estimated sales returns and rebate incentives are necessary as of December 31, 2013 and 2012.
License fee revenue is recognized on a straight-line basis over the term of the license agreement.
F-10
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
When the Company enters into arrangements that contain more than one deliverable, the Company
allocates revenue to the separate elements under the arrangement based on their relative selling
prices in accordance with FASB ASC 605-25.
(j) Income Taxes
The Company follows FASB ASC 740 when accounting for income taxes, which requires an asset
and liability approach to financial accounting and reporting for income taxes. Deferred income
tax assets and liabilities are computed annually for temporary differences between the financial
statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax expense or benefit is
the tax payable or refundable for the period plus or minus the change during the period in deferred
tax assets and liabilities.
(k) Shipping and Handling Fees and Costs
The Company charges actual shipping plus a handling fee to customers, which amounted to
$40,714 and $41,738 for December 31, 2013 and 2012. These fees are classified as part of product
revenue in the statement of operations. Shipping and other related delivery costs, including those
for incoming raw materials are classified as part of the cost of net revenue, which amounted to
$96,187 and $72,305 for December 31, 2013 and 2012.
During 2013, the Company reclassified shipping and handling fees included in other income of
$44,892 in the year ended December 31, 2012 to product revenue to match the revenue with the
related expenses.
(l) Research and Development Costs
In accordance with FASB ASC 730, research and development costs are expensed when incurred.
(m) Stock-based Payments
The Company accounts for stock-based compensation under the provisions of FASB ASC
718, Compensation—Stock Compensation, which requires the measurement and recognition of
compensation expense for all stock-based awards made to employees and directors based on
estimated fair values on the grant date. The Company estimates the fair value of stock-based
awards on the date of grant using the Black-Scholes model. The value of the portion of the award
that is ultimately expected to vest is recognized as expense over shorter of the period over which
services are to be received or the vesting period.
F-11
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company accounts for stock-based compensation awards to non-employees in accordance
with FASB ASC 505-50, Equity-Based Payments to Non-Employees. Under FASB ASC 505-50,
the Company determines the fair value of the stock warrants or stock-based compensation awards
granted as either the fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable.
All issuances of stock warrants or other equity instruments to non-employees as consideration for
goods or services received by the Company are accounted for based on the fair value of the equity
instruments issued. 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 period which services are to be received.
(n) Basic and Diluted Earnings per Share of Common Stock
Basic earnings per common share are based on the weighted average number of shares outstanding
during the periods presented. Diluted earnings per share are computed using the weighted average
number of common shares plus dilutive common share equivalents outstanding during the period.
Potential common shares that would have the effect of increasing diluted earnings per share are
considered anti-dilutive, i.e. the exercise prices of the outstanding stock options were greater than
the market price of the common stock.
(o) Recently Adopted Accounting Pronouncements
As of December 31, 2013 and for the year then ended, there were no recently adopted accounting
pronouncements that had a material effect on the Company’s financial statements.
(p) Recently Issued Accounting Pronouncements not Yet Adopted
As of December 31, 2013, there are no recently issued standards not yet adopted which would
have a material effect on the Company’s financial statements.
F-12
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4 - Note Receivable – Related Parties
The note of $225,000 was issued to the Company in connection with the subscription of
10,000,000 series A convertible preferred stock entered into on September 14, 2012 (Note 12). It
is due September 14, 2027 and has an interest rate of 3% per annum. For the year ended December
31, 2013, interest income of $1,054 and $1,997 was recorded. The note was fully settled in cash
on February 26, 2013 and hence the note is recorded as a receivable instead of being shown as a
contra account against the preferred stock as of December 31, 2012.
As of December 31, 2011 BreathScan International Ltd owed the Company $148,900 for products
related to the licensing agreement dated March 17, 2010. This note was written-off on June 19,
2012 as part of the 3 year exclusive License & Supply agreement with Chubeworkx Guernsey
Limited (as a successor to SONO International Limited)(“Chubeworkx”).
Note 5 - License Fee Receivable – Related Party
On June 19, 2012, the Company entered into a 3-year exclusive License & Supply Agreement
with Chubeworkx Guernsey Limited (as a successor
to SONO International Limited)
(“Chubeworkx”) for the purchase and distribution of the Company’s proprietary breathalyzers
outside North America (Note 15). Chubeworkx agreed to pay a licensing fee of $1,000,000. The
final payment of $450,000 was received on March 6, 2013.
On June 12, 2013, Chubeworkx became a shareholder of the Company (Note 18)
Note 6 - Inventories
Inventories at December 31, 2013 and 2012 consists of the following categories:
Raw Materials
Sub-Assemblies
Finished Goods
Reserve for Obsolescence
2013
2012
$ 299,464 $ 516,497
335,229 464,107
422,411 39,249
(32,000 ) (32,000 )
$ 1,025,104 $ 987,853
For the years ended December 31, 2013 and 2012 $- and $32,000 was charged to cost of goods
sold for obsolete inventory.
Certain items in sub-assemblies in 2012 were reclassified to finished goods to conform to the 2013
presentation.
F-13
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 7 - Property, Plant and Equipment
Property, plant and equipment as of December 31, 2013 and 2012 are as follows:
Computer Equipment
Computer Software
Office Equipment
Furniture & Fixtures
Machinery & Equipment
Molds & Dies
Leasehold Improvements
Less
Accumulated Depreciation
2013
2012
22,930
50,049
29,939
$ 100,405 $ 100,405
22,930
50,049
29,939
1,098,503 1,021,061
649,647 603,957
222,594 222,594
2,174,067 2,050,935
1,906,746 1,810,921
$ 267,321 $ 240,014
During the years ended December 31, 2013 and 2012 depreciation expense was $95,825 and
$113,104.
Note 8 - Intangible Assets
Intangible assets as of December 31, 2013 and 2012 and the movements for the years then ended
are as follows:
F-14
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Distributor &
Patents & Customer
Trademarks Relationships Totals
$ 3,851,494 $
-
-
3,851,494
1,270,639 $ 5,122,133
-
-
-
-
1,270,639 5,122,133
899,713
258,572
-
1,158,285
1,270,639 2,170,352
- 258,572
-
-
1,270,639 2,428,924
Cost or Deemed Cost
At December 31, 2011
Additions
Disposals
At December 31, 2012
Accumulated Amortization
At December 31, 2011
Amortization Charge
Disposals
At December 31, 2012
Net Book Value
At December 31, 2011
2,951,781
At December 31, 2012
2,693,209
- 2,951,781
- 2,693,209
Cost or Deemed Cost
At December 31, 2012
Additions
Disposals
At December 31, 2013
Accumulated Amortization
At December 31, 2012
Amortization Charge
Disposals
At December 31, 2013
Net Book Value
3,851,494
-
-
3,851,494
1,270,639 5,122,133
-
-
-
-
1,270,639 5,122,133
1,158,285
258,572
-
1,416,857
1,270,639 2,428,924
- 258,572
-
-
1,270,639 2,687,496
At December 31, 2012
2,693,209
At December 31, 2013
$ 2,434,637 $
- 2,693,209
- $ 2,434,637
During the years ended December 31, 2013 and 2012 amortization expense was $258,572 and
$258,572.
Note 9 - Trade and Other Payables
Trade and other payables as of December 31, 2013 and 2012 are as follows:
2013
2012
Trade Payables
Other Payables
Legal Settlement Payable
$ 623,157 $ 608,836
377,256 366,744
- 106,924
$ 1,000,413 $ 1,082,504
Trade and other payables are non-interest bearing and are normally settled on 30 – 60 day terms.
The legal settlement is non-interest bearing and has a term of 12 equal monthly installments,
which commended on October 31, 2012.
F-15
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The legal settlements payable comprises two arbitration settlements as follows:
(a) On January 9, 2012, the Company was notified of an action to recover unpaid royalties for the
exclusive use of a patent used in the production of our MPC Biosensor products
(MicroParticle Catalyzed Biosensor). The dispute related to the method used to calculate
royalty payments and the scope of the products involved for the period dated March 17, 2007
through March 19, 2012.
On April 23, 2012, the Company agreed to an arbitration settlement of $137,791. The
settlement is to be paid over 12 months, with an initial payment of $50,000 and 11 equal
payments of $7,981. As of December 31, 2013 the amount due was $-.
The Company recorded an amount of $131,376 in Sales and Marketing expenses in 2011.
Upon agreement of the settlement on April 23, 2012, an additional amount of $6,425 was
accrued and recorded as Sales and Marketing expenses in 2012.
(b) On January 11, 2012, the Company was notified of a demand for arbitration from Trinity
Biotech Manufacturing Limited related to the distributor agreement between the parties dated
June 19, 2008.
On October 15, 2012, the Company agreed to an arbitration settlement of $118,000. The
settlement is to be paid over 13 months, with an initial payment of $18,000 and 12 equal
payments of $8,333. As of December 31, 2013 the amount due was $-.
The Company recorded $118,000 in Administrative expense in 2012.
Note 10 - Deferred Revenue – Related Party
Deferred revenue represents the unearned revenue from the 3-year exclusive License and Supply
Agreement with Chubeworkx Guernsey Limited (Note 15) for the purchase and distribution of the
Company’s proprietary breathalyzer that was signed in June, 2012. The first order for the
proprietary breathalyzers was received in December 2012 for 3,500,000 units and additional
orders were received in 2013 totaling 4,620,000 units. As of December 31, 2013, 5,000,000 units
have shipped and 2,500,000 units are packaged awaiting delivery instructions. The license revenue
is being recognized monthly on a straight line basis over the 3-year term of the agreement.
Note 11 - Share-based Payments
(a) Stock Warrants
The Company has issued warrants to various employees, consultants and members of the Board of
Directors of the Company for their services either in connection with the Company’s ongoing
efforts to raise capital or the development of the Company’s products. In addition, the Company
has granted warrants to lenders in connection with the issuance of debt. Each warrant granted may
be exchanged for a prescribed number of shares of common stock. The warrants expire March 18,
2015.
F-16
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
2013
Weighted
Average
2012
Weighted
Average
Warrants Exercise Price Warrants Exercise Price
Outstanding at January 1
Cancelled during year
Expired during year
Outstanding at December 31
47,211 $
(44,870 )
(352 )
1,989 $
48.54 60,031 $
-
46.80
138.84 (12,820 )
71.76 47,211 $
61.91
-
111.15
48.54
The Company has adopted two option plans that permit the granting of options to purchase shares
of common stock. The plans provide for the granting of both incentive stock options (“Incentive
Stock Plan”), as defined in Section 422 of the U.S. Internal Revenue Code (the “Code”), and
options defined by Section 422 of the Code (“Non-qualified options”).
The plans are administered by a Compensation Committee, which is appointed by the Board of
Directors, who grants all options and determines their terms. Options are non-transferable and are
only granted to employees, officers and directors, and advisors or consultants who agree to be
employed or to provide services to the Company for a period of at least one year after the grant
date. The maximum term of any option under the plans is ten years, and generally vest over three
years.
(b) Stock options
Qualified option holders may exercise their options at their discretion. Each option granted may be
exchanged for a prescribed number of shares of common stock.
Employee's Plan
2013
Weighted
Average
2012
Weighted
Average
Options Exercise Price Options Exercise Price
Outstanding at January 1
Forfeited during year
Expired during year
Outstanding at December 31
1,579 $
-
(1,579 )
- $
42.12 2,860 $
- (1,281 )
-
- 1,579 $
42.12
42.12
42.12
-
42.12
Director's Plan
2013
Weighted
Average
2012
Weighted
Average
Options Exercise Price Options Exercise Price
Outstanding at January 1
Cancelled during year
Expired during year
Outstanding at December 31
352 $
(352 )
-
- $
312.00 5,639 $
-
312.00
- (5,287 )
352 $
-
69.59
-
53.45
312.00
The options and warrants issued under the above three plans were valued using a Black Scholes
option pricing model on the date of measurement. There were no options or warrants granted
during 2013 or 2012.
F-17
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A summary of warrants and stock options outstanding and exercisable as of December 31, 2013
follows:
Outstanding
Wgtd Avg Wgtd Avg
Exercise
Life
Shares Remaining Price
Exercisable
Wtgt Avg
Exercise
Low
High
Shares Price
Warrants $ 71.76 $ 71.76 1,989
1.23 $
71.76 1,989 $
71.76
Note 12 - Equity
The holders of common shares are entitled to one vote per share at meetings of the Company.
Holders of Series A convertible preferred shares are entitled to five votes per share at meetings of
the Company.
At December 31, 2013 and 2012, the Company has an undeclared dividend due to series A
convertible preferred shareholders in the amount of $15,793 and $3,995.
On July 7, 2012, the Company issued 641 common shares to an investor for $1,068.
On September 14, 2012, the Company, in a private placement to an investor, issued 192,305
common shares for $450,000 and 10,000,000 series A convertible preferred shares to an investor
for a promissory note of $225,000 (Note 4). The series A convertible preferred shares have the
following rights:
Voting Rights. Preferred stockholders have voting rights equal to the number of common
shares stockholder would own upon conversion of shares of preferred stock. The
preferred stock is convertible into 320,512 shares of common stock.
Dividends. The holders of the Convertible Preferred Stock are entitled to receive
preferential dividends at a rate of $0.00135 per share. Such dividends compound annually
and are fully cumulative and have priority to any dividends on common stock.
Liquidation Preferences. The holders of the Convertible Preferred Stock are entitled to
receive liquidation preferences for payment of any dividends due the holders. After
payment of the liquidation preferences, the remaining assets, if any, are to be distributed
to the holders of the Convertible Preferred Stock and common stock on a pro rata basis.
Conversion. One share of the Convertible Preferred Stock is convertible into five shares
of the Company’s common stock at the option of the holder. In order to convert, the
holders of the Convertible Preferred Stock must make a one- time payment to the
Company of $500,000.
The Convertible Preferred Stock is recorded as equity in accordance with FASB ASC 480. In
accordance with FASB ASC 815, it was determined that the conversion feature was not
required to be bifurcated from the equity host.
F-18
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On December 20, 2012 the Company increased its authorized number of preferred stock to
50,000,000 and its authorized number common stock to 500,000,000
On June 12, 2013 the Company, in a private placement to ChubeWorkx, issued 512,820 common
shares for $1,600,000.
On August 8, 2013, the Company filed a registration statement with the Security and Exchange
Commission seeking authority to begin trading the Company’s common shares on the NASDAQ
stock exchange.
On November 6, 2013, the Company approved a 156-to-1 reverse stock split of the Company’s
common shares to raise the price per share to $10.11 as calculated using the November 6, 2013
closing AIM London Stock Exchange (“LSE”) market price of £0.0405 or $0.0648 per share to
facilitate the NASDAQ initial public offering. All shares and per share amounts in the
consolidated financial statements have been adjusted to give retroactive effect to the 156-1 reverse
stock split.
On November 15, 2013, Thomas Knox executed the conversion of 10,000,000 shares of Series A
convertible preferred stock to 320,512 shares of common stock (50,000,000 pre-split shares) and
entered into a promissory note of $500,000 as a basis to provide the required onetime payment due
upon conversion as set forth in the subscription agreement dated September 14, 2012. The
promissory note requires payment of the principal in full prior to maturity date of November 15,
2014 (the “Maturity Date”) with interest on the unpaid principal balance at the rate of the thirty
day average LIBOR per annum commencing on November 15, 2013. The interest is to be paid in
one lump sum on or before December 31 of each calendar year. The 320,512 shares of common
stock will be held by the Company as collateral until all amounts owing under this note are
paid. In the event that Mr. Knox does not pay in full all amounts due and owing under the note
within 15 business days of the Maturity Date the Company has the right to cancel the 320,512
shares of common stock; provided however, the Company provides Mr. Knox no less than thirty
(30) day written notice prior to cancelling the common stock. Mr. Knox shall have no less than
sixty (60) days from the date the notice is received to pay all amount due and owing under the
note.
On December 3, 2013, the note receivable received for the conversion of the Series A convertible
preferred stock was cancelled in exchange of 58,515 shares of common stock at the AIM:LSE
market closing price of £5.2250 using the exchange rate of $1.6355 or $8.5455 per share. The
Company has recorded the receipt of the 58,515 shares as a reduction of the issued and
outstanding common stock, as the shares were retired upon receipt.
F-19
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On December 23 2013, the Company issued 114,072 common shares in a private placement
offering. The transaction was recorded at the value of the net proceeds. The proceeds were
recorded in Other Receivables at December 31, 2013. The cash proceeds from the sale were
received on January 2, 2014. The expenses related to this private placement are detailed below:
Gross Proceeds:
Broker Commission
Legal Fees
Total Expenses
Net Proceeds:
$
$
800,732
40,037
15,672
55,708
745,024
As of December 31, 2013 and 2012 the Company has reserved shares of its common stock as
follows:
Reserves for:
Convertible Preferred Stock
Outstanding Warrants
Outstanding Employee Options
Outstanding Directors Options
Total Reserves
2013
2012
1,989
-
-
- 320,512
47,211
1,579
352
1,989 369,654
The following is a reconcilement of the movement of shares of Series A Convertible Preferred
stock (preferred stock) and common stock:
Authorized
Issued
Preferred Common Preferred Common
Stock
15,000,000 200,000,000
Stock
- 1,086,002
Stock
Stock
-
-
-
641
- 10,000,000 192,305
-
-
35,000,000 300,000,000
50,000,000 500,000,000 10,000,000 1,278,948
-
-
-
- (10,000,000 ) 320,512
-
- (58,515 )
-
-
50,000,000 500,000,000
-
-
- 512,820
- 114,072
- 2,167,837
Balance at December 31, 2011
Shares Issued:
July 7, 2012
September 14, 2012
Increase in Authorization:
December 20, 2012
Balance at December 31, 2012
Preferred Share Conversion:
November 15, 2013
Shares Cancelled:
December 3, 2013
Shares Issued:
June 12, 2013
December 23, 2013
Balance at December 31, 2013
F-20
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 13 - Loss per share
The calculation of basic and diluted loss per share at December 31, 2013 and 2012 was based on
the loss attributable to common shareholders of $1,526,773 and $2,557,820. The basic and diluted
weighted average number of common shares outstanding for 2013 and 2012 was 1,596,722 and
1,143,058.
Diluted net loss per share is computed using the weighted average number of common and dilutive
potential common shares outstanding during the period.
Potential common shares consist of preferred stocks, options and warrants. Diluted net loss per
common share was the same as basic net loss per common share for the years ended December 31,
2013 and 2012 since the effect of preferred stocks, options and warrants would be anti-dilutive due
to the net loss attributable to the common shareholders for the years. Instruments excluded from
dilutive earnings per share, because their inclusion would be anti-dilutive, were as follows: series
A convertible preferred stock – nil (2012: 320,512), employee and consulting stock options – nil
(2012: 1,931); warrants 1,989 (2012: 47,211).
Note 14 - Income Tax Expense
The Company’s income tax benefit is as follows:
Current
Deferred
Change in Valuation Allowance
Income Tax Benefit
Years Ended December 31
2013
- $
939,998 $
(939,998 ) $
- $
2012
167,408
1,108,127
(1,108,127 )
167,408
$
$
During 2012, the Company was approved by the State of New Jersey to sell a portion of its state
tax benefits that existed as of December 31, 2011, pursuant to the Technology Tax Certificate
Transfer Program. The Company received net proceeds of $- in 2013 (2012: $167,408) as a result
of the sale of the tax benefits, which has been included when received as an income tax benefit in
the consolidated statement of operations.
As of December 31, 2013 and 2012, the Company had Federal net operating loss carry forwards of
approximately $47,600,000 and $46,500,000, expiring through the year ending December 31,
2033. As of December 31, 2013 and 2012, the Company had New Jersey state net operating loss
carry forwards of approximately $8,100,000 and $5,600,000, expiring through the year ending
December 31, 2020.
F-21
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The principle components of the deferred tax assets and related valuation allowances as of
December 31, 2013 and 2012 are as follows:
Reserves and other
Net operating loss carry-forwards
Valuation Allowance
Net
Years Ended December 31
2013
2012
$
$
844,729 $
17,165,809
(18,010,538 )
- $
921,068
16,149,472
(17,070,540 )
-
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, 2013 and 2012 are as follows:
Statutory U.S. Federal Income Tax Rate
New Jersey State income taxes, net of U.S.
Federal tax effect
Change in Valuation Allowance
Net
Years Ended December 31
2013
2012
(35.0 )%
(35.0 )%
(5.9 )%
40.9 %
(0.0 )%
(6.0 )%
35.0 %
(6.0 )%
The valuation allowance for deferred tax assets as of December 31, 2013 and 2012 was
18,010,538 and $17,070,540. The change in the total valuation for the years ended December 31,
2013 and 2012 were increases of $939,998 and $1,108,127. In assessing the realization of
deferred tax assets, management considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in which the net
operating losses and temporary differences become deductible. Management considered projected
future taxable income and tax planning strategies in making this assessment. The value of the
deferred tax assets was fully offset by a valuation allowance, due to the current uncertainty of the
future realization of the deferred tax assets.
The Company’s policy is to record interest and penalties associated with unrecognized tax benefits
as additional income taxes in the statement of operations. As of January 1, 2013, the Company
had no unrecognized tax benefits and no charge during 2013, and accordingly, the Company did
not recognize any interest or penalties during 2013 related to unrecognized tax benefits. There is
no accrual for uncertain tax positions as of December 31, 2013.
The Company files U.S. federal income tax returns and a state income tax returns. With few
exceptions, the U.S. and state income tax returns filed for the tax years ending on December 31,
2010 and thereafter are subject to examination by the relevant taxing authorities.
F-22
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 15 - Related Party Transactions
On January 12, 2011, the Company entered into a consulting agreement with Nicolette Consulting
Group Limited (NCG) for a period of three years under which the Company must pay NCG
$27,917 per month in fees and up to $10,000 in reimbursement for monthly expenses (2013:
$110,000; 2012: $100,000) for the services of Mr. Nicolette as President and Chief Executive
Officer of the Company. The consulting agreement was extended through February 11, 2014 on
December 23, 2013 and extended through March 31, 2014 on March 15, 2014. Mr. Nicolette has
decided to step down from the Board and resigned from the Company effective March 28, 2014.
The total amount of consulting fees accrued for NCG as of December 31, 2013 and 2012 was $-
and $58,542 and is shown as Other Payables – Related Party in the Consolidated Balance Sheet.
On March 17, 2010, in exchange for an exclusive licensing agreement, ABI received a 20 percent
equity stake in BreathScan International Ltd (BIL). During 2012, BreathScan International
Limited changed its name to en(10) Guernsey Limited (“en(10)”). Thomas A. Nicolette, President
and Chief Executive Officer of the Company, was also appointed to en(10)’s Board of Directors.
The equity stake is accounted for using the equity method of accounting in accordance with the
Financial Accounting Standards Board Accounting Standards Codification. The equity investment
was initially recorded at cost, which was nil. During the years ended December 31, 2013 and 2012
no profit or loss is recorded for en(10)’s results as en(10) recorded a net loss and the Company is
not required to equity account any losses in excess of its carrying value on the books. On June 13,
2013 the Company sold its interest in en(10) to ChubeWorkx for $100,000 and Mr. Nicolette
resigned from en(10)’s Board of Directors. A realized gain of $99,710 is recognized for the
disposal of the investment in the statement of operations for the year ended December 31, 2013.
On June 19, 2012, the Company entered into a 3 year exclusive License & Supply Agreement with
Chubeworkx Guernsey Limited (as successor to SONO International Limited) (“Chubeworkx”)
for the purchase and distribution of ABI’s proprietary breathalyzers outside North America.
Chubeworkx paid a licensing fee of $1,000,000, of which $333,333 and $27,776 was recognized
as income for the years ended December 31, 2013 and 2012, with the deferral to be recognized
over the remaining term of the agreement (Note 5).
On June 13, 2013, the Company announced an expansion of the License and Supply Agreement
with Chubeworkx to include worldwide marketing and distribution of the “Be CHUBE” program
using the Company’s breathalyzer.
On June 14, 2013, the Company announced that Chubeworkx has agreed to subscribe for 512,820
new common shares in the Company for a total price of $1,600,000. The proceeds were received
by the Company on June 14, 2013.
F-23
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In accordance with FASB ASC 605-25, Revenue Recognition, Multiple-Element Arrangements,
since the Amended License and Supply Agreement with Chubeworks was entered into
simultaneously with the sale of the Company’s 20% interest in en(10) to Chubeworks and
Chubeworks purchase of 512,820 shares of the Company’s common stock, the Company
evaluated the separate agreements as a single arrangement with multiple deliverables in
considering whether there were one or more units of accounting. The three arrangements were
considered to be separate units of accounting since the three transactions have value to
Chubeworks on a stand-alone basis and the transactions were consummated with no right of
return. The entire consideration of the three arrangements was allocated at the inception of the
arrangements on the basis of their relative selling price. The proceeds of $1,600,000 were
allocated to the sale of the 80 million shares of the Company’s common stock based on third party
selling price. The third party selling price was based on the selling price of the stock on the AIM
Market of the London Stock Exchange on date of the arrangement. The Amended License and
Supply agreement was allocated zero value based on the Company’s best estimate of the selling
price for that deliverable. This best estimate was based on the fact that the Company and
Chubeworks are in the process of developing an appropriate marketing plan for the region and that
there is no current active market for the Company’s CHUBE products in the expanded region.
$100,000 of the proceeds were allocated to the sale of the Company’s 20% interest in en(10) based
on the Company’s best estimate of the selling price for this deliverable. This best estimate was
based on the negotiation of the sale with Chubeworks.
On August 5, 2013, the Board of Directors appointed Gary M Rauch, the principle of DataSys
Solutions, LLC (DS), as the Corporate Treasurer. The Company entered into a consulting
agreement with DS on January 1, 2011, with a term of three years, under which the Company
agreed to pay $5,625 per month for Mr. Rauch’s services as Controller of the Company.
On December 23, 2013, the Company entered into a short-term bridge loan with Nicolette
Consulting Group for $307,500, payable on January 15, 2014 with a 5% per annum interest rate.
The transaction was recorded as a Short-Term Notes Payable – Related Party. The loan, with
interest amounting to $969, was paid in full on January 15, 2014.
Trade receivables – related party for the years ended December 31, 2013 and 2012 are amounts
due from Chubeworkx Guernsey Limited, a major shareholder of the Company of $1,209,388 and
$10,013. The amount due is non-interest bearing, unsecured and has a term of 90 days generally.
Product revenue – related parties for the years ended December 31, 2013 and 2012 are $1,719,340
and $12,673 from Chubeworkx Guernsey Limited, a major shareholder of the Company.
Administrative expenses – related parties for the years ended December 31, 2013 and 2012 are
$361,176 and $335,004 for Nicolette Consulting Group, $67,500 and $67,500 for DataSys
Solutions and $- and $148,900 for the write-off of the ChubeWorkx note receivable as part of the
June 2012 licensing agreement.
F-24
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 16 - Commitments
The Company leases its facility in West Deptford, New Jersey under an operating lease with
annual rentals of $130,200 plus common area maintenance (CAM) charges. The lease, which took
effect on January 1, 2008, reduced the CAM charges allowing the Company to reach their own
agreements with utilities and other maintenance providers.
On January 7, 2013, the Company extended its lease agreement for a term of 7 years, expiring
December 31, 2019. Under the terms of the lease, The Company will pay $132,000 per year.
Next 12 Months
Next 13-24 Months
Next 25-36 Months
Next 37-48 Months
Next 49-60 Months
Thereafter
$
132,000
132,000
132,000
132,000
132,000
132,000
Rent expense, including related CAM charges for the years ended December 31, 2013 and 2012
were $148,593 and $160,207.
Note 17 – Major Customers
For the year ended December 31, 2013, two customers each generated more than 10% of the
Company’s revenue. In aggregate, sales to these customers accounted for 79% of the Company’s
revenue. As of December 31, 2013, the amount due from these two customers was $1,269,769.
This concentration makes the Company vulnerable to a near-term severe impact should the
relationships be terminated.
For the year ended December 31, 2012, one customer generated more than 10% of the Company’s
revenue. Sales to this customer accounted for 49% of the Company’s revenue. As of December 31,
2012, the amount due from the customer was $44,629.
Note 18 – Major Suppliers
For the year ended December 31, 2013, three suppliers each accounted for more than 10% of the
Company’s purchases. In aggregate, these suppliers accounted for 60% of the Company’s total
purchases. As of December 31, 2013, the amount due to these three suppliers was $167,616. This
makes the Company vulnerable to a near-term severe impact should the relationships be
terminated.
For the year ended December 31, 2012, one supplier accounted for more than 10% of the
Company’s purchases. This supplier accounted for 42% of the Company’s total purchases. As of
December 31, 2012, the amount due to the supplier was $252,368.
F-25
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 19 - Other Income
Other income consists of interest income and other miscellaneous income items. As of December
31, 2013 and 2012 the earnings were as follows:
Interest Income
Miscellaneous Income
Total:
2013
2012
$
$
1,094 $
91,905
92,999 $
2,366
788
3,154
Note 20 – Contingencies
On November 7, 2013, the Company received a letter from the counsel of Rapid Breath
Diagnostics, LLC (“RBD”) alleging, among other things, the Company entered into a purported
Authorized Distributor and License Agreement with RBD which was materially altered without
RBD’s consent. Additionally, RBD claims that the Company has violated certain intellectual
property rights of RBD with respect to its Ketone Check and Metron products. RBD is alleging
that it has suffered $250,000 in damages and that it has development and ownership of the market
use of Ketone Check for the management of neurological diseases as well as intellectual property
rights to the name Metron. The Company informed RBD that the alleged agreement was not fully
executed, and that the Company’s offer to enter into the agreement was void. See Note 21 –
“Subsequent Events”.
Note 21 - Subsequent events
On January 9, 2014, the Company commenced a lawsuit in the United States Federal Court,
District of New Jersey, against Rapid Breath Diagnostics, LLC and David A. Urman (collectively,
“the RBD Parties”). The Complaint requests that the Court declare the rights of the parties with
respect to an alleged Distributor and License Agreement and to preliminary enjoin the RBD
Parties from continuing to prosecute an arbitration filed with the American Arbitration
Association with respect to the same subject matter (“the Arbitration”). Pursuant to stipulation of
the parties, the Arbitration has since been discontinued in anticipation of the RBD Parties’
agreement to litigate the dispute in the court action. The Company is not able to assess its position
in the court action in terms of favorable or unfavorable position and intends to vigorously defend
against any counterclaims, if asserted.
F-26
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On January 23, 2014 the Company completed its initial public offering on the NASDAQ stock
exchange, placing 2,727,000 common shares. The transaction was recorded at the value of the net
proceeds. The cash proceeds from the sale were received on January 28, 2014. The estimated
expenses related to this private placement are detailed below:
Gross Proceeds:
Underwriter/Aegis Expenses
Underwriter Commission
Underwriter Expenses
Aegis Legal Fees
Aegis Registration Expenses
Aegis Miscellaneous Expenses
Aegis Road Show Expenses
Total
Akers Biosciences Expenses
Legal & Accounting Expenses
Printing & Document Prep
Registration Expenses
Road Show Expenses
Total
Net Procceds:
$
$
14,998,500
1,049,895
149,985
80,000
7,500
36,775
20,000
1,344,155
393,298
60,564
55,946
29,411
539,219
13,115,126
On January 23, 2014, upon effectiveness of the registration statement filed with the Securities and
Exchange Commission (“SEC”), the Board of Directors appointed Brandon Knox as a non-
executive director.
On January 23, 2014, upon effectiveness of the registration statement filed with the SEC, the
Company adopted the 2013 Stock Incentive Plan (the “Plan”) which will provide for the issuance
of up to 400,000 shares. The purpose of the Plan is to provide additional incentive to those
officers, employees, consultants and non-employee directors of the Company and its parents,
subsidiaries and affiliates whose contributions are essential to the growth and success of the
Company’s business. The 2013 Plan may be administered by the board or a board-appointed
committee. Eligible recipients of option awards are employees, officers, consultants or directors
(including non-employee directors) of the Company or of any parent, subsidiary or affiliate of the
Company. The board has the authority to grant to any eligible recipient any options, restricted
stock or other awards valued in whole or in part by reference to, or otherwise based on, our
common stock.
F-27
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Raymond Akers Jr., certify that:
1.
I have reviewed this Form 10-K of Akers Biosciences, Inc.;
2.
3.
4.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 28, 2014
By: /s/ Raymond Akers Jr.
Raymond Akers Jr.
Principal Executive Officer
Akers Biosciences, Inc.
1
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Raymond Akers Jr, certify that:
1.
I have reviewed this Form 10-K of Akers Biosciences, Inc.;
2.
3.
4.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 28, 2014
By: /s/ Raymond Akers Jr.
Raymond Akers Jr.
Principal Financial Officer
Akers Biosciences, Inc.
2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with this Annual Report of Akers Biosciences, Inc. (the “Company”), on Form 10-K for the fiscal year
ended December 31, 2013, as filed with the U.S. Securities and Exchange Commission on the date hereof, I,
Raymond Akers Jr., Principal Executive Officer of the Company, certify to the best of my knowledge, pursuant to
18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) Such Annual Report on Form 10-K for the fiscal year ended December 31, 2013, fully complies with the
requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in such Annual Report on Form 10-K for the fiscal year ended December 31,
2013, fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: March 28, 2014
By: /s/ Raymond Akers Jr.
Raymond Akers Jr.
Principal Executive Officer
Akers Biosciences, Inc.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with this Annual Report of Akers Biosciences, Inc. (the “Company”), on Form 10-K for the fiscal year
ended December 31, 2013, as filed with the U.S. Securities and Exchange Commission on the date hereof, I,
Raymond Akers Jr., Principal Financial Officer of the Company, certify to the best of my knowledge, pursuant to 18
U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) Such Annual Report on Form 10-K for the fiscal year ended December 31, 2013, fully complies with the
requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in such Annual Report on Form 10-K for the fiscal year ended December 31,
2013, fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: March 28, 2014
4844-3837-5963, v. 1
By: /s/ Raymond Akers Jr.
Raymond Akers Jr.
3