Akers Biosciences, Inc. (NASDAQ: AKER) — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Amounts are in U.S. dollars. The filing was signed May 15, 2020.
Business context
Akers sold rapid point-of-care screening and testing products, with reduced sales volumes and a production backlog. On March 23, 2020, it acquired Cystron Biotech, obtaining an exclusive license to develop a COVID-19 vaccine using Premas Biotech’s platform. Akers also began a strategic review of its screening and testing business, including possible disposition or winddown, and continued exploring opportunities in hemp and cannabinoids.
Financial highlights
| Metric | Q1 2020 | Q1 2019 / prior date |
|---|---|---|
| Product revenue | $363,515 | $612,123; down 41% |
| Gross income / margin | $190,644 / approximately 52% | $366,186 / approximately 60% |
| Operating loss | $(3,545,573) | $(940,002) |
| Net loss | $(3,538,536) | $(916,958) |
| Basic and diluted loss per share | $(1.59) | $(1.70) |
| Cash used in operating activities | $(1,966,983) | $(748,735) |
| Cash and restricted cash | $927,533 | $632,538 at Dec. 31, 2019 |
| Marketable securities | $6,629,434 | $9,164,273 at Dec. 31, 2019 |
| Working capital | $6,116,477 | — |
| Total liabilities | $2,304,348 | $1,529,765 at Dec. 31, 2019 |
Revenue weakness reflected supply constraints affecting PIFA assays; PIFA revenue fell 38%, and MPC revenue was zero versus $23,320. Lower sales reduced gross income, while fixed production costs weighed on margin. Research and development expense was $2,483,057, principally related to the Cystron license acquisition and a $250,000 development milestone. Administrative expense rose 18%, including higher legal and professional costs. Akers reported no income tax benefit on its losses. The filing reports no interest-bearing debt; liabilities primarily comprise payables and operating lease obligations.
Material changes and subsequent events
- Operating cash use increased year over year. Net cash provided by investing activities was $2,261,901, mainly from sales of marketable securities; financing cash flow was $77.
- Common shares outstanding increased from 1,738,837 at year-end to 2,915,240 at March 31, partly from prepaid warrant exercises and shares issued for the Cystron license. The filing reports 4,755,407 shares outstanding on May 15.
- After quarter-end, an April registered offering raised net proceeds of $4,146,102; exercises of Series C preferred warrants generated $4,174,000. A May offering for approximately $4.8 million gross proceeds was pending customary closing conditions at the filing date.
- Cystron consideration included $1 million cash and equity valued at $1,233,057. The agreement also provides for potential equity offering payments, up to $20.75 million of milestone payments, milestone shares, and royalties on future vaccine sales. Additional Premas milestones were reported as achieved after quarter-end.
Outlook, risks, contingencies, and unusual items
- Management said available resources were sufficient for its current 12-month operating budget from the financial statements’ issuance date, but also said significant additional funding would be needed to develop the vaccine through clinical trials and commercialization. Capital access may be constrained by volatile markets and the pandemic.
- COVID-19-related restrictions, supplier and production disruptions, and pressure on healthcare customers could further affect operations and testing-product sales. Management gave no quantified revenue or earnings guidance.
- Two customers generated 95% of Q1 revenue; one supplier represented 64% of purchases. Loss of key relationships could materially affect the business.
- Legal matters include shareholder derivative litigation with final settlement approval pending, a contract claim seeking $1,551,562 plus costs, a product-liability claim seeking more than $1 million, and a former executive’s severance claim. The company disputes the claims; the filing says some exposures cannot yet be determined. Insurance coverage includes reservations of rights.
- Other notable items: a $36,714 investment loss, a $240,937 unrealized loss on marketable securities, and a $2,952 impairment charge related to breath-product intellectual property. The company adopted lease accounting and recorded lease right-of-use assets and liabilities; the lease covers its facility through December 2021, with an early termination option.
Important facts for investors to verify
- Whether testing-product production backlogs improve and whether the strategic review results in a disposition or winddown.
- Vaccine development progress, clinical and regulatory requirements, milestone obligations, license terms, and the amount and timing of required financing.
- Closing and net proceeds of the May offering, subsequent cash burn, and dilution from equity, preferred securities, warrants, and contingent consideration.
- Customer and supplier concentration, and developments in the pending litigation and insurance coverage.
- Management’s liquidity assessment alongside continued operating losses and the need for substantial additional capital for vaccine development.