Akers Biosciences, Inc. — Q3 2015 Form 10-Q
Reporting period: Three and nine months ended September 30, 2015. The company develops and sells rapid diagnostic tests, including PIFA Heparin/PF4 assays and breath-based products. Interim financial statements are unaudited.
Financial performance
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $169,473 | $453,313 | $1,646,443 | $2,980,389 |
| Gross profit/(loss) | $(8,479) | $291,168 | $901,124 | $2,072,513 |
| Operating loss | $(2,345,412) | $(1,142,767) | $(5,822,649) | $(2,271,634) |
| Net loss attributable to common stockholders | $(2,326,893) | $(1,124,320) | $(5,734,921) | $(2,230,708) |
| Loss per share, basic and diluted | $(0.45) | $(0.23) | $(1.12) | $(0.48) |
| Operating cash flow | Not separately presented for quarter | $(4,000,447) | $(2,757,258) |
Q3 revenue fell 63% year over year, reflecting lower PIFA distributor stock depletion and no license revenue after the ChubeWorkx agreement ended. Nine-month revenue declined 45%. PIFA product revenue increased 9% for the nine-month period, but MPC revenue fell 73%; prior-year revenue included a $864,000 Tri-Cholesterol stocking order that did not recur. Q3 gross margin was negative; the company reported a 55% gross margin for the nine-month period, versus 70% in 2014.
For the first nine months, sales and marketing expense rose 92% to $1.85 million, R&D expense rose 46% to $1.00 million, and general and administrative expense rose 28% to $3.21 million. These included commercialization and development spending, as well as an $864,000 allowance against a related-party receivable. A $466,476 impairment charge was recorded for two patents and a trademark.
Liquidity, assets and debt
- At September 30, cash was $393,372 and marketable securities were $5,229,225. Total current assets were $8,257,337; current liabilities were $1,256,293; reported working capital was $7,001,044.
- Total assets were $11,054,522 and stockholders’ equity was $9,798,229. The balance sheet reported no debt at period end. The company had a $1,299,610 related-party note receivable, including current and non-current portions.
- Cash declined $62,469 from year-end 2014. Investing activities provided net cash of $3,937,978, primarily reflecting proceeds from sales of marketable securities; financing activities provided no cash in 2015.
- The accumulated deficit was $90,599,007. Common shares outstanding were 5,144,837 at September 30, 2015.
Outlook, risks and notable items
- Management expects operating losses to continue in the near term, potentially significantly, but believes working capital will fund estimated needs for at least 24 months. This is management’s estimate, not a guarantee.
- Management projected approximately $250,000 of 2015 capital expenditures. It cited continued spending on product development, clinical and regulatory work, and commercialization.
- Management expected U.S. PIFA hospital adoption to approach 250 hospitals by year-end, with estimated annualized U.S. PIFA revenue of $3.75 million entering 2016 if stated hospital growth and revenue assumptions continued. It also cited anticipated minimum purchases from the China distributor of approximately $1 million in 2015 and $6 million in 2016.
- On November 4, 2015, the company announced CFDA approval for medical use of its PIFA Heparin/PF4 test in mainland China. Other stated commercial expectations included additional shipments to a new EU breathalyzer distributor and potential fourth-quarter sales growth for METRON and BreathScan Lync.
- Two customers generated 65% of product revenue for the first nine months; the filing warns that losing these relationships could have a severe near-term effect. Three suppliers represented 47% of purchases for the period.
- A related-party receivable from 36 Strategies of $864,000 was fully reserved after the company assessed collection risk. The company also had a $1.30 million note receivable from major shareholder ChubeWorkx; the filing describes litigation over the note and related agreements. ChubeWorkx had filed a UK lawsuit, and no loss accrual was recorded because a reasonable estimate could not be made.
- After quarter-end, the company settled litigation with Lawrence Martin: it agreed to pay $75,000 over 12 months and assign back two U.S. patents by January 1, 2016; related royalty obligations continue until that date. The $75,000 had been accrued at quarter-end.
- The ChubeWorkx exclusive license and supply agreement was mutually terminated in May 2015. The company recognized the remaining $166,667 of deferred license revenue during the first half of 2015.
Key facts for investors to verify
- Whether operating cash burn moderates and management’s stated 24-month liquidity estimate remains supportable, considering cash on hand, marketable securities and expected commercialization spending.
- Whether China distributor purchases, U.S. PIFA hospital growth, and the EU distributor’s planned shipments translate into collected revenue on the timelines and amounts cited.
- Collectability and repayment performance of the ChubeWorkx note, status and potential outcome of related litigation, and any resulting impact on the company’s financial position.
- Customer concentration, the 36 Strategies receivable allowance, and the sustainability of gross margins as product mix and sales volumes change.
- Execution of the Martin settlement, including the patent assignments and remaining royalty obligations.