Business Context and Reporting Period
Company: Akers Biosciences, Inc. (Ticker: AKER)
Filing Type: Form 8-K (Current Report)
Date of Report: March 23, 2020
Reporting Period: Events occurring on March 23 and March 24, 2020.
Context: The Company entered into a definitive agreement to acquire 100% of the membership interests of Cystron Biotech, LLC, gaining access to an exclusive license for a COVID-19 vaccine platform.
Key Financial Metrics and Transaction Terms
This filing details a material definitive agreement rather than periodic financial performance. Key financial terms of the acquisition include:
- Initial Equity Consideration: Issuance of common stock equal to 19.9% of the Company's issued and outstanding shares (subject to 4.9% beneficial ownership blockers).
- Initial Cash Consideration: $1,000,000 payable upon the Company raising $8,000,000 in gross proceeds from a future equity offering.
- Contingent Cash Consideration: 10% of gross proceeds from future equity offerings exceeding $8,000,000, capped at an aggregate additional $10,000,000.
- Milestone Payments:
- Up to 750,000 shares of common stock (or non-voting preferred stock with 10% annual dividend) upon completion of a Phase 2 study meeting primary endpoints.
- Up to $20,750,000 in cash upon achievement of regulatory milestones, including FDA approval of a new drug application.
- Royalties: 5% of net sales of the COVID-19 vaccine for five years following first commercial sale, reducing to 3% on sales exceeding $500 million.
- Change of Control: Sellers entitled to 12.5% of the transaction value if a change of control occurs within five years while the vaccine is still in development.
Financial Performance: The filing text does not provide revenue, profit, cash flow, margins, debt, or liquidity metrics for the Company.
Material Changes and Agreements
The primary material change is the acquisition of Cystron Biotech, LLC and its underlying assets. Key components include:
- Membership Interest Purchase Agreement (MIPA): Acquires 100% of Cystron Biotech, LLC.
- License Agreement: Cystron holds an exclusive license from Premas Biotech PVT Ltd. for a vaccine platform targeting COVID-19 and other coronavirus infections. Cystron is obligated to pay Premas up to $2,000,000 in developmental milestones.
- Support Agreement: Sellers agreed to vote their shares in favor of management proposals at all stockholder meetings.
- Registration Rights: Company agreed to file a registration statement (Form S-3 or S-1) within 30 days of closing to register shares issued to Sellers.
- Series D Convertible Preferred Stock: On March 24, 2020, the Company filed a Certificate of Designation for Series D stock with a $0.01 stated value, convertible at $0.01 per share, subject to a 4.99% beneficial ownership limitation.
Outlook, Risks, and Contingencies
Outlook and Management Commentary: The transaction is contingent upon the Company's ability to raise capital (specifically $8,000,000 in gross proceeds) to trigger initial cash payments. Future value is heavily dependent on the successful development of the COVID-19 vaccine and regulatory approval.
Risks and Contingencies:
- Capital Raise Dependency: Significant cash consideration is contingent on the Company successfully executing future equity offerings.
- Dilution: The issuance of 19.9% of outstanding shares, plus potential milestone shares, represents significant dilution to existing shareholders.
- Development Risk: Milestone payments and royalty obligations are tied to clinical success (Phase 2) and regulatory approval (FDA), which are not guaranteed.
- Change of Control: A significant portion of the transaction value (12.5%) is payable to Sellers in the event of a change of control within five years.
Investor Verification Checklist
- Verify the current number of outstanding shares to calculate the exact dilution impact of the 19.9% issuance.
- Confirm the Company's current cash position and immediate plans for the equity offering required to trigger the $1,000,000 initial cash payment.
- Review the full text of the License Agreement with Premas Biotech to understand specific development timelines and obligations.
- Assess the terms of the Series D Convertible Preferred Stock and its potential impact on future capital structure.
- Monitor the status of the COVID-19 vaccine development and any updates regarding Phase 2 study enrollment or results.