Akers Biosciences, Inc. — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018; this is an annual report, not a standalone fourth-quarter report. The audited financial statements received an unqualified opinion. The company develops and manufactures rapid diagnostic tests, and in October 2018 shifted its primary focus to commercializing its PIFA heparin/PF4 assays.
Financial performance and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $1.666 million | $3.355 million |
| Gross profit / margin | $127,285 / 8% | $948,580 / 28% |
| Operating loss | $10.060 million | $6.614 million |
| Net loss | $10.849 million | $7.366 million |
| Cash used in operations | $8.517 million | $5.080 million |
| Cash provided by financing | $9.105 million | $10.461 million |
| Capital expenditures | $68,214 | $54,507 |
- Year-end cash was $181,755, marketable securities $5.273 million, and restricted cash $500,000. Together, cash, marketable securities and restricted cash totaled $5.955 million.
- Working capital was $4.697 million; total assets were $7.807 million, total liabilities $1.974 million, and shareholders’ equity $5.834 million. The balance sheet reports no debt; liabilities were reported as trade and other payables.
- Gross margin fell as the company wrote down OxiChek inventory and other discontinued-product materials. The company also recorded $1.505 million in litigation settlement expense and $716,148 in intangible-asset impairment.
Changes from 2017
- Revenue declined 50%. PIFA revenue fell 36% to $1.422 million, attributed to distributor overstocking, lower demand and reduced first-half production following low antigen yields. MPC revenue fell 67%, including the withdrawal of OxiChek; REA revenue fell 49%. Other revenue declined after a one-time 2017 sale of components was not repeated.
- Administrative expenses rose 39% to $5.666 million, primarily due to legal, accounting, consulting and director costs. Sales and marketing expenses fell 13%, and research and development expenses fell 16%, partly reflecting workforce reductions.
- Net loss increased 47%; operating cash use also increased. Financing included $7.155 million of warrant exercises and $1.950 million of net proceeds from a November stock offering.
Outlook, risks and unusual items
- Management expects near-term operating losses and says operating cash flows are insufficient to cover anticipated expenses. It expects to need additional financing; the filing identifies substantial doubt about the company’s ability to continue as a going concern. Separately, the notes state that March 22, 2019 working capital was expected to cover obligations falling due within one year after issuance. These statements should be considered together.
- The board began a strategic-alternatives review in November 2018, including potential business combinations and opportunities in cannabis-related industries. No transaction is assured. Management also planned cost controls and efforts to reduce PIFA costs.
- Customer concentration is significant. The filing reports two customers generated 71% of 2018 revenue in the financial-statement notes, while another disclosure says Cardinal Health and Fisher represented approximately 69% of product revenue. Two customers accounted for 73% of gross receivables at year-end.
- Manufacturing yields for PIFA were below target in the first half of 2018, causing backorders. The company was working with its supplier and evaluating alternative antigen sources. Single-source supplies, temperature-sensitive shipments and distributor dependence add execution risk.
- Pulse Health settlement: $930,000 paid in October 2018, with a permanent injunction barring specified OxiChek-related products. The company said it did not expect a material revenue effect. A securities class-action settlement of $2.25 million and a derivative-action settlement involving $200,000 in attorneys’ fees were agreed in 2019, subject to court approval; the filing’s stated liability assessment relies on insurance coverage and settlement approval. A separate arbitration seeks at least $220,500, which the company disputes.
- The 2017 financial statements and certain 2017 quarterly statements were restated for revenue-recognition, expense-recognition and inventory-valuation errors. Management concluded disclosure controls and internal control over financial reporting were ineffective at December 31, 2018, citing material weaknesses; remediation was underway. The auditor did not provide an internal-control attestation.
- The company completed an 8-for-1 reverse stock split in November 2018 and delisted from London’s AIM market on March 29, 2019. The filing also describes prior NASDAQ listing-compliance issues and a workforce reduction.
Important facts for investors to verify
- Whether additional financing is available, on what terms, and how long the reported liquidity can fund operations.
- Whether PIFA production yields and order levels recover, and whether customer concentration or receivable collection changes.
- The final court approval, insurance coverage and cash impact of the securities and derivative settlements, plus the outcome of the Typenex arbitration and executive claims.
- Progress and independent validation of control-remediation measures following the restatements and material weaknesses.
- Any outcome of the strategic review, including whether the company pursues a cannabis-related business and the regulatory, funding and dilution implications.