Akers Biosciences, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2020. The filing was signed August 14, 2020. The company was shifting from rapid point-of-care testing products to development of a COVID-19 vaccine candidate with Premas Biotech.
Key financial results
| Metric | Three months ended June 30, 2020 | Six months ended June 30, 2020 | Comparable 2019 period |
|---|---|---|---|
| Revenue | $(1,888) | $361,627 | $464,513 quarter; $1,076,634 half-year |
| Gross profit (loss) | $(379,057) | $(188,413) | $244,649 quarter; $610,833 half-year |
| Gross margin | (255)% | (131)% | 53% quarter; 57% half-year |
| Operating loss | $(3,657,269) | $(7,205,794) | $(821,710) quarter; $(1,761,715) half-year |
| Net loss | $(3,628,131) | $(7,166,667) | $(794,891) quarter; $(1,711,849) half-year |
| Basic and diluted loss per share | $(0.69) | $(1.92) | $(1.47) quarter; $(3.16) half-year |
| Net cash used in operating activities | Not stated quarterly | $(3,883,101) | $(1,610,352) half-year |
Quarterly revenue was negative because of credits and adjustments; the filing attributes the collapse in product sales to supply issues, declining demand, and discontinued products. Gross loss also reflected fixed production costs and a $193,839 inventory write-down. For the six months, research and development expense was $4,399,218, including vaccine license and development costs; the prior-year period reported no R&D expense.
Financial position and liquidity
- At June 30, cash was $11.447 million, restricted cash was $115,094, and marketable securities were $6.857 million. The filing reports working capital of $15.772 million and shareholders’ equity of $15.972 million.
- Total liabilities were $2.706 million, principally trade and other payables of $2.626 million and a current operating lease liability of $80,018. The balance sheet reports no conventional borrowings or debt.
- Cash provided by financing activities was $12.581 million in the first half, primarily from common-stock offerings and exercises of Series C preferred warrants. Cash provided by investing activities was $2.231 million, mainly from securities sales.
- Management said resources available at the filing date were sufficient for its current 12-month operating budget, while also stating that significant additional funding would be needed over the next 12 months to continue vaccine development. Existing resources were not expected to fund the vaccine through all clinical trials, approval, and commercialization.
Material changes and developments
- Revenue fell 100% year over year in the second quarter and 66% in the first half. First-half net loss increased to $7.167 million from $1.712 million.
- The company acquired Cystron in March 2020 for a license to Premas’s vaccine platform, paying $1 million cash and issuing common and Series D preferred shares. It recorded $2.233 million of initial license acquisition expense; additional milestone and equity-offering-related payments apply under the agreements.
- After quarter-end, the company ceased production and sales of its rapid testing products, decided to close its facility, and exercised an early lease termination option effective December 13, 2020. It recorded impairment charges during the quarter for prepaid royalties, production equipment, and remaining intangible assets; inventory was written down to zero.
- Subsequent financing included an August registered direct offering of 1,207,744 common shares for approximately $6.2 million net proceeds, plus $3.566 million from Series C warrant exercises after June 30. These financings increase liquidity but dilute existing shareholders.
- An August settlement with ChubeWorkx involved $300,000 cash and 500,000 common shares. The filing describes a prior security interest over substantially all assets; its release is conditional on the settlement terms, including resale registration.
Outlook, risks, and contingencies
- The COVID-19 vaccine candidate remained early-stage. The filing reports animal studies initiated in India in July and ongoing discussions with the FDA and Indian regulators; it reports no human clinical trials, IND submission, or marketing application. The risk-factor discussion also says preclinical studies had not yet begun, creating an apparent timing or wording inconsistency that investors should verify.
- Management provided no quantified revenue or earnings guidance. It warned that vaccine development will require substantial further capital and depends on financing access, regulatory progress, clinical results, manufacturing capacity, and Premas’s licensed technology and performance. Competitors had candidates at more advanced stages, and the filing cautions that development or approval may fail or be delayed.
- The company was exploring strategic alternatives, including potential business combinations, but gave no assurance that a transaction would result.
- A Novotek contract lawsuit sought $1,551,562 plus interest and other costs. The company disputed the claims, and said its potential exposure could not yet be determined; a motion to dismiss had been denied. Other described matters were resolved or had no significant reported financial impact.
- Management reported disclosure controls were effective at the reasonable-assurance level as of June 30, 2020, with no material second-quarter changes in internal control over financial reporting.
Most important facts for investors to verify
- Available cash and securities, cash burn, and the timing and terms of further financing; distinguish funding for the operating budget from funding needed to complete vaccine development.
- The vaccine’s actual preclinical status, regulatory communications, study results, and any subsequent progress toward human trials.
- All Cystron/Premas milestone, offering-linked, royalty, and contingent payment obligations, including amounts due after the offerings.
- Share dilution from completed and potential offerings, preferred securities, warrants, and the ChubeWorkx settlement shares.
- Facility closure and lease termination costs, settlement completion and release of liens, and the status and potential exposure of the Novotek litigation.