Akers Biosciences, Inc. — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016. The company develops and sells rapid diagnostic and screening products. Financial statements are unaudited.
Financial performance and liquidity
| Metric | Q2 2016 | Six months 2016 |
|---|---|---|
| Revenue | $956,486 (down 1% year over year) | $1,694,510 (up 15%) |
| Gross profit / margin | $679,638 / 71% | $1,217,634 / 72% |
| Operating loss | $1,014,802 | $2,531,760 |
| Net loss | $1,008,932; $0.19 per share | $2,517,861; $0.46 per share |
| Cash used in operations | — | $2,415,742 |
At June 30, cash was $379,531 and marketable securities were $1,548,029, totaling $1,927,560. Working capital was $2,359,932; total assets were $5,684,031 and total liabilities $1,565,702. Liabilities shown are trade and other payables; the filing reports no default on indebtedness and does not show interest-bearing debt on the balance sheet.
Cash declined $22,528 in the first half. Investing activities provided $2,393,214, primarily from $2,502,319 of marketable-security sale proceeds, partly offset by capital expenditures and securities purchases. Capital expenditures were $81,462. Accumulated deficit was $96,693,860.
Changes versus comparable periods
- Product revenue rose 28% in Q2 and 47% for the first half, led by PIFA Heparin/PF4 assays. Total Q2 revenue was nearly flat, while first-half revenue increased 15%.
- License revenue fell to zero after the ChubeWorkx license arrangement was canceled in 2015; this offset product growth.
- Gross margin increased from 65% to 71% in Q2 and from 62% to 72% for the first half, which management attributed mainly to higher average selling prices for PIFA products.
- Net loss improved year over year: $1.01 million versus $2.09 million in Q2 and $2.52 million versus $3.41 million in the first half. Lower bad-debt expense contributed to lower administrative costs.
- First-half sales and marketing expense increased 10% to $1,238,754; R&D expense was approximately flat at $685,280. R&D included increased clinical-trial spending.
- Marketable securities fell from $4,025,104 at year-end 2015 to $1,548,029 at June 30, 2016, largely alongside their sale to fund operations.
Outlook, risks, and notable items
- Management expects operating losses to continue in the near term and says they could be significant. It believes working capital will cover estimated cash needs for at least 12 months, while stating it is monitoring cash and expenses.
- Management identified product development, clinical trials, regulatory work, and commercialization as expected spending priorities. 2016 capital expenditures were estimated at approximately $200,000.
- A $2.5 million order for PIFA products from Novotek, the company’s exclusive China distributor, was received in February 2016. Two $250,000 payments had been received by June 30; the company recognized $505,380 of related revenue in the first half. Further shipments and revenue recognition were expected during the year, subject to applicable criteria.
- Customer concentration is significant: three customers generated 82% of first-half product revenue; two generated 79% in Q2. Management warns that losing these relationships could have a severe near-term impact.
- The company and ChubeWorkx had agreed in principle to a global settlement of disputes but were still finalizing agreements. No loss accrual was recorded and management expected no settlement loss.
- The filing reports recurring losses and negative operating cash flow, reliance on successful commercialization and regulatory progress, and potential impairment of patent costs if products fail to reach market. Risk factors were said to be unchanged from the prior Form 10-K.
- On June 8, the company issued 27,500 restricted shares to an officer, valued at $54,725. Disclosure controls were assessed as effective; no material quarterly change in internal control was reported.
Important facts for investors to verify
- Whether Novotek’s order converts into scheduled shipments, revenue, and cash collection as planned.
- Whether the reported 12-month liquidity expectation remains supportable given operating cash use and continuing losses.
- Customer retention and diversification, given the high concentration of product sales.
- Progress, costs, and required regulatory clearances for clinical and pipeline products.
- Completion and final terms of the ChubeWorkx settlement.