Akers Biosciences, Inc. (AKER) — Q1 2019 Form 10-Q
Business context and reporting period. The filing covers the three months ended March 31, 2019. Akers develops and sells rapid diagnostic tests, including products for heparin-related testing, cholesterol screening and alcohol detection. The filing describes an ongoing review of strategic alternatives, including potential business combinations. Financial amounts below are in U.S. dollars.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 / prior balance-sheet date |
|---|---|---|
| Revenue | $612,123 | $302,475 |
| Gross profit; gross margin | $366,186; approximately 60% | $4,975; approximately 2% |
| Operating loss | $(940,002) | $(1,893,457) |
| Net loss; loss per share | $(916,958); $(0.07) | $(1,859,991); $(0.21) |
| Cash used in operating activities | $(748,735) | $(1,800,372) |
| Cash and restricted cash at period end | $755,522 | $647,267 |
| Marketable securities | $4,477,525 | $5,272,998 at Dec. 31, 2018 |
| Working capital | $3,885,885 | Not provided for Q1 2018 |
| Total liabilities; shareholders’ equity | $2,076,421; $4,965,918 | $1,973,500; $5,833,753 at Dec. 31, 2018 |
Cash and restricted cash includes $480,000 restricted for legal fees; cash excluding restricted cash was $275,522. The balance sheet reports trade and other payables as current liabilities and no interest-bearing debt. Investing activities provided $822,502, primarily from marketable securities sales; financing activities provided no cash. Capital expenditures were zero.
Changes versus the prior comparable period
- Revenue rose 102%, mainly because PIFA product revenue increased 122% to $576,317; management attributed the increase to supply issues in Q1 2018 that did not recur. Two customers generated 89% of Q1 2019 revenue.
- Gross margin improved substantially, which management attributed to a narrower, higher-margin product mix, cost reductions and better absorption of production fixed costs.
- Net loss and operating cash use both narrowed year over year, but the company remained loss-making and cash-flow negative from operations.
- Administrative expense increased 7%, while sales and marketing expense fell 70% and compliance, research and development expense fell 80%. Management cited headcount reductions and reduced research and development activity; the remaining R&D-related staff focused on regulatory and quality functions.
- Weighted-average common shares increased to 12.48 million from 8.96 million. The company issued 15,000 shares to a key employee and granted 374,481 director RSUs during the quarter.
Outlook, risks and unusual items
- Funding and outlook: Management expects operating losses to continue in the near term and says additional funding may be needed to pursue its long-term strategy and strategic alternatives. It expects working capital to cover obligations for one year after issuance of the statements, but says financing may not be available on acceptable terms or at all.
- Strategic review and listing: The board’s strategic-alternatives review remained ongoing, with no assurance of a transaction. The company delisted from London’s AIM market effective March 29, 2019. On May 10, 2019, Nasdaq notified Akers that its share price did not meet the $1.00 minimum bid-price requirement; the company said it would monitor the price and consider compliance options.
- Legal matters: A securities class-action settlement for $2.25 million was signed in March, subject to court approval. A separate shareholder derivative settlement includes $200,000 in attorneys’ fees and corporate reforms, and faced an intervention challenge. Typenex arbitration seeks at least $220,500; Akers disputes the claim. Former executives have also threatened claims. The filing does not establish the ultimate outcomes of these matters.
- Customer, supplier and receivable concentration: Two customers represented 89% of quarterly revenue; three customers accounted for 80% of gross receivables. The largest receivable was fully reserved. Two suppliers represented 44% of purchases. These concentrations could expose the company to material disruption if relationships change.
- Other items: The company owes ChubeWorkx a 5% royalty on gross revenue under a settlement, subject to stated limits and terms; Q1 royalty expense was $31,284. Management reported disclosure controls effective at a reasonable-assurance level and described enhancements to financial reporting controls. No specific financial guidance was provided.
Important facts for investors to verify
- Progress and outcome of the strategic-alternatives review, and whether Akers can secure funding if needed.
- Nasdaq bid-price compliance status and any resulting listing actions.
- Court approval and funding of the $2.25 million class-action settlement, plus developments in the derivative actions and Typenex arbitration.
- Whether revenue growth and gross-margin gains persist, given reliance on a small number of customers and PIFA products.
- Cash burn, restricted cash availability, and whether reported working capital remains sufficient as losses continue.