Akers Biosciences, Inc. — Q3 2014 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2014. The interim financial statements are unaudited. Akers develops and sells rapid diagnostic testing products, including breath tests and Heparin/PF4 assays.
Financial results and liquidity
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $453,313 | $344,709 | $2,980,389 | $3,006,377 |
| Gross profit | $291,168 | $250,673 | $2,072,513 | $1,503,074 |
| Gross margin | 64% | 73% | 70% | 50% |
| Net loss attributable to common stockholders | $1,124,320 | $544,370 | $2,230,708 | $745,215 |
| Basic and diluted loss per share | $0.23 | $0.30 | $0.48 | $0.50 |
| Cash used in operating activities | Not separately stated | Not separately stated | $2,757,258 | $1,868,345 |
At September 30, cash was $642,515 and marketable securities were $10,206,992; working capital was $13,313,561. Total assets were $16,782,653 and total liabilities were $1,054,944. No short-term notes payable remained; a $307,500 related-party bridge loan was repaid in January. The company reported an accumulated deficit of $83,951,834.
The January 2014 IPO issued 2,727,000 shares and generated net proceeds of $13,101,336. Cash and marketable securities together were approximately $10.85 million at quarter-end. Management said working capital should fund estimated cash needs for at least 36 months, while also expecting continuing operating losses.
Material changes and operating drivers
- Quarterly revenue rose 32%, while nine-month revenue declined 1%. Nine-month product revenue increased 7% to $2.72 million, but license revenue fell to $260,000 from $450,000, including a $200,000 one-time license fee in the 2013 period.
- For the nine months, MPC product sales fell 48% to $878,659, largely due to lower breathalyzer orders from Chubeworkx after France indefinitely postponed fines for drivers who lacked breathalyzers. PIFA sales rose 14% to $931,647. REA sales contributed $864,000, versus none in the prior-year period.
- The $864,000 REA sale was recognized while Australian TGA approval remained pending. The distributor may return the product if approval is denied; management considered rejection and return risk insignificant based on existing approvals and its history.
- Nine-month gross margin improved to 70%, primarily because the REA sale carried no significant cost of sales. Management cautioned that this margin may not continue. In Q3, gross margin declined to 64% from 73%.
- Nine-month general and administrative expense increased to $2,497,485 from $1,046,426, and sales and marketing expense rose to $966,357 from $536,631. Management cited staffing, professional services, investor-relations and dual-listing costs, and expanded marketing activity. R&D declined 9% to $686,376.
Outlook, risks and notable items
- Management expects near-term operating losses, potentially significant, due to product development, clinical and regulatory work, and commercialization costs. Planned priorities include PIFA PLUSS, Breath Ketone Check and Breath PulmoHealth Check development, regulatory clearances, and marketing existing products. No revenue or earnings guidance was provided.
- Customer concentration is substantial: three customers generated 82% of nine-month revenue, and three accounted for 96% of trade receivables. The company also disclosed $1,475,767 due from related-party shareholder Chubeworkx and said it was discussing changes to the receivable terms.
- Management identified ineffective disclosure controls as of September 30. Existing controls were outdated and built primarily for IFRS rather than U.S. GAAP reporting; an accounting firm was engaged to update them, with implementation planned by year-end.
- A dispute with Rapid Breath Diagnostics was settled in July for a nominal one-time payment. After quarter-end, Akers and Lawrence Martin filed competing contract-related lawsuits, including allegations concerning royalties; the filing does not quantify potential exposure.
- After quarter-end, Akers signed a China joint-venture agreement and planned to invest $64,794 for a 19.9% interest. The filing reports no significant known off-balance-sheet arrangements and no defaults on indebtedness.
Investor verification points
- Track collection and revised terms for the Chubeworkx related-party receivable, as well as concentration in the small number of major customers.
- Confirm TGA approval and whether the $864,000 REA sale remains collectible and non-returnable.
- Compare actual cash burn and operating losses with management’s stated 36-month working-capital runway.
- Assess whether the planned remediation of disclosure controls was completed and whether controls became effective.
- Monitor the Martin litigation and any material developments, claims or financial exposure.