Akers Biosciences, Inc. — FY2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. The company develops and sells rapid diagnostic and wellness tests, primarily through distributors. Figures below are in U.S. dollars.
Financial performance and position
| Metric | FY2017 | FY2016 |
|---|---|---|
| Total revenue | $3.93 million | $2.96 million |
| Gross profit / margin | $2.51 million / 63% | $1.88 million / 63% |
| Operating loss | $5.05 million | $3.33 million |
| Net loss attributable to common shareholders | $5.81 million | $3.30 million |
| Cash used in operating activities | $5.08 million | $4.17 million |
| Cash and marketable securities at year-end | $5.45 million | $0.12 million |
- Revenue rose 33%. MPC product revenue increased 237% to $951,000 and REA revenue was $134,000; PIFA revenue, the largest product line, declined 13% to $2.23 million. Other revenue included a $500,000 sale of PIFA-related components to NovoTek.
- U.S. revenue increased 23% to $2.86 million; China revenue was $627,000 and rest-of-world revenue was $441,000.
- Operating expenses increased: administrative expense was $4.08 million, sales and marketing expense was $2.05 million including $202,000 of related-party royalties, and research and development expense was approximately $1.26 million including related-party expense.
- Net loss included a $765,000 warrant-modification expense. FY2016 operating results included a $1.30 million reversal of a related-party bad-debt allowance, affecting comparability.
- At year-end, current assets were $9.32 million and current liabilities $1.77 million; reported working capital was $7.55 million. The balance sheet reports no debt. Cash was supplemented by $5.01 million in marketable securities.
- Financing activities provided $10.46 million, primarily from common and preferred stock offerings and warrant exercises. Common shares outstanding were 44.2 million at year-end versus 5.45 million at the end of 2016; 49.5 million warrants were outstanding at year-end.
Outlook, risks and notable items
- Management expected continued operating losses in the near term, citing development, clinical and regulatory spending and commercialization costs. It targeted a cash-flow-positive position in the second quarter of 2018; this was a management expectation, not assured guidance. Weekly operating cash requirements were expected to remain approximately $95,000–$100,000 through 2018.
- Management said year-end working capital should fund estimated needs for at least 12 months. Subsequent to year-end, the company reported approximately $8.94 million in cash and marketable securities and $11.19 million in working capital as of March 16, 2018; it also disclosed subsequent warrant exercises.
- Three customers represented approximately 62% of 2017 revenue, and three customers accounted for 51% of year-end trade receivables. Dependence on major distributors and the timing of China reimbursement approvals are material risks.
- Key pipeline products require further regulatory work, including the PIFA Chlamydia 510(k) clearance; management said a delay could hurt revenue projections. Other development priorities included infectious-disease, diabetic ketoacidosis and pulmonary-health tests.
- The company disclosed a material weakness in internal control over financial reporting related to segregation of duties, plus other documentation and data-management deficiencies. Disclosure controls were also deemed ineffective. Management planned remediation during 2018; the auditor did not attest to internal controls.
- Pulse Health’s remaining contract claim seeks at least $500,000 and an injunction related to OxiChek. The company disputed the claim, had moved for summary judgment, and recorded no loss accrual because the outcome could not be assessed.
- A settlement with Chube requires a 5% royalty on gross revenue until cumulative royalties reach $5 million; certain company assets secure obligations under the settlement. The company recorded $202,000 of related royalties in 2017.
- NASDAQ had notified the company that its share price was below the $1 minimum bid requirement; the initial compliance period ran through May 29, 2018. The stock was also highly volatile, and outstanding warrants create substantial potential dilution.
Most important facts for investors to verify
- Whether subsequent financing and cash balances support operations, given the $5.08 million operating cash outflow and ongoing losses.
- Whether management achieved the stated second-quarter 2018 cash-flow-positive target and its revenue assumptions.
- Revenue sustainability and collection of receivables, particularly from the concentrated customer base and China-related counterparties.
- Regulatory progress, commercial adoption and unit economics for the pipeline and recently introduced products.
- Remediation of the material weakness, the outcome of the Pulse litigation, Chube royalty/security obligations, and NASDAQ listing compliance.
- Potential dilution from warrants and equity awards; also reconcile reported share counts across dates, since the filing gives 44.2 million shares at year-end and 81.97 million as of March 15, 2018.