Akers Biosciences, Inc. (Nasdaq: AKER) — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019. This is an annual report; standalone fourth-quarter results are not provided in the filing text.
Business context
Akers developed and manufactured rapid point-of-care diagnostic products, with most revenue generated by PIFA tests for heparin-induced thrombocytopenia. Other marketed products included BreathScan alcohol detectors. The company had eliminated its sales force by year-end and substantially reduced research and development activity while evaluating strategic alternatives, including opportunities in hemp and minor cannabinoids. On March 23, 2020, after the reporting period, Akers acquired Cystron Biotech, which holds an exclusive license for a vaccine platform intended for COVID-19 and other coronavirus infections.
Financial performance and liquidity
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $1.577 million | $1.666 million |
| Gross profit / margin | $479,000 / 30% | $127,000 / 8% |
| Operating loss | $3.946 million | $10.060 million |
| Net loss | $3.888 million | $10.849 million |
| Operating cash used | $3.074 million | $8.502 million |
- PIFA revenue fell 7% to $1.328 million; MPC revenue rose 2% to $126,000; REA revenue was $85,000, largely from a large customer order. Two distributors accounted for 79% of 2019 revenue.
- Administrative expenses declined 34% to $3.729 million; sales and marketing expenses fell 87% to $238,000, and compliance, research and development expenses fell 74% to $277,000. Lower headcount and professional fees drove much of the reductions.
- At December 31, 2019, cash was $517,000, restricted cash was $115,000, and marketable securities were $9.164 million. Working capital was $8.781 million; current liabilities were $1.530 million. The balance sheet reported no debt, and shareholders’ equity was $9.355 million, alongside an accumulated deficit of $119.583 million.
- Financing activities provided $6.966 million in 2019, primarily from equity and prepaid equity forward offerings. Capital expenditures were zero. Management said available resources were sufficient for the operating budget for twelve months from issuance of the financial statements, approximately through March 2021; it also expected significant additional financing would be needed for vaccine development or a strategic transaction.
- The cash flow statement reports investing cash used of $3.941 million in 2019. The MD&A narrative instead describes investing cash as provided in that amount, an apparent inconsistency to verify.
Material changes, outlook, and risks
- Gross margin improved substantially as Akers narrowed its product lineup and cut manufacturing costs. Net loss and operating cash burn also decreased, but the company remained loss-making and dependent on external financing.
- Akers reported a production backlog for its PIFA Heparin/PF4 and PIFA PLUSS/PF4 assays in early 2020. A distributor told customers the products were temporarily unavailable; management expected to address the backlog within weeks but warned it could reduce 2020 revenue and results.
- The Cystron acquisition consideration included $1 million cash and equity equal to 19.9% of specified outstanding shares and pre-funded warrants, plus potential additional cash payments, milestone equity, up to $20.75 million of contingent payments, and royalties of 5% of vaccine net sales (3% above $500 million) for five years. The deal also provides sellers a potential 12.5% share of qualifying change-of-control transaction value. These obligations could create material dilution and cash needs.
- The COVID-19 vaccine program was at an early stage, with no assurance of clinical success, regulatory approval, manufacturing capacity, or commercial demand. Competition, dependence on the Premas license, and the need for additional funding were prominent risks. The filing gives no specific revenue or earnings guidance.
- COVID-19-related operating restrictions and reduced operations were expected to adversely affect results, cash flows, and financial position, but the impact could not be estimated. Other key risks included customer and supplier concentration, single-site manufacturing, Nasdaq listing and financing risks, and product liability and securities litigation.
- Notable contingencies included a product-liability suit alleging false-negative PIFA results and seeking more than $1 million, a contract suit seeking approximately $1.552 million, and a former executive’s severance claim for $200,000 plus fees. A securities class action settlement of $2.25 million was paid by the D&O insurer and received final court approval in December 2019. A separate derivative-action settlement involving $325,000 in attorneys’ fees had preliminary approval, with final approval pending.
Key facts investors should verify
- Reconcile the MD&A description of investing cash flow with the cash flow statement’s reported $3.941 million use.
- Confirm current liquidity, cash burn, and financing raised since the filing, particularly against management’s stated March 2021 operating runway and vaccine funding needs.
- Track PIFA backlog resolution, production capacity, distributor availability, and customer concentration.
- Review the Cystron acquisition’s actual share issuance, cash payments, contingent obligations, license status, and vaccine development progress.
- Check updates on the product-liability and contract cases, insurance coverage and reservations of rights, and final approval of the derivative settlement.
- Assess dilution exposure from outstanding warrants, prepaid equity forward contracts, preferred securities, and acquisition consideration.