Akers Biosciences, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. Akers develops and sells rapid diagnostic tests, including PIFA heparin/PF4 assays and breath-based testing products.
Financial performance
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $667,250 | $738,023 |
| Gross profit / margin | $408,529 / 61% | $537,995 / 73% |
| Operating loss | $1,362,153 | $1,516,958 |
| Net loss | $1,349,270 | $1,508,929 |
| Loss per share, basic and diluted | $0.19 | $0.28 |
| Net cash used in operating activities | $1,561,663 | $1,719,855 |
- Revenue declined 10%. PIFA revenue fell 12% to $560,921, while MPC revenue rose 32% to $85,659, primarily from BreathScan Lync and OxiChek sales. The filing attributes PIFA comparisons partly to distributor rebate/contract changes and the absence of prior-year China revenue.
- Gross margin fell 12 percentage points. Management cited higher manufacturing supplies and subcontractor costs, partly related to new-product introduction, and expected the margin to return to 65%–68% in the near term.
- Administrative expense declined 14% to $790,529; sales and marketing expense declined 19% to $588,934; R&D expense declined 4% to $348,442. Operating loss narrowed about 10%.
- At March 31, cash was $2.09 million and marketable securities were $157,475; working capital was $3.97 million. Total liabilities were $1.36 million, all current payables, with no long-term debt shown on the balance sheet. Stockholders’ equity was $5.75 million and accumulated deficit was $98.83 million.
- Operating cash use was $1.56 million. Financing provided $3.70 million, including net proceeds from a public offering ($1.69 million), private placement ($1.76 million) and warrant exercises ($245,000). Cash ended the quarter at $2.09 million, compared with $180,390 a year earlier.
Changes, outlook and management commentary
- Share count rose to 8,853,745 at quarter-end from 5,452,545 at year-end, reflecting equity offerings and warrant exercises. The company also issued warrants; 1,455,650 remained outstanding at March 31. As of May 15, common shares outstanding were 8,895,075.
- Management said it expects operating losses to continue in the near term, citing commercialization, product-development, clinical and regulatory costs, and inconsistent ordering from newer distribution partners. It believed available working capital would cover estimated cash needs for at least 12 months, while also warning that limited cash shortages could occur in the first half of 2017.
- The strategic plan targets product launches, increased sales and marketing penetration, and expense management. Management anticipated weekly operating cash needs returning to approximately $80,000–$85,000 after Q1 averaged $120,722, which it attributed partly to vendor payments, a deferred royalty payment and other contractual obligations. It also described pursuing a bank credit line and possible shareholder backing.
- Management reported cash and marketable securities of approximately $1.75 million and working capital of approximately $3.70 million as of May 10, 2017. The filing does not reconcile these May 10 amounts with the March 31 balances and working capital reported elsewhere.
- Capital expenditures were $16,774 in Q1; approximately $65,000 was expected for full-year 2017. No specific revenue guidance was provided.
Risks, contingencies and unusual items
- Two customers generated 67% of Q1 revenue and represented 55% of trade receivables, creating material customer-concentration risk. One supplier represented 23% of purchases.
- Pulse Health sought at least $500,000 in damages in a contract and product-related lawsuit. In April 2017, the court dismissed unfair-competition claims with prejudice but left the contract-related case to proceed in Oregon. Akers disputed the claims, could not assess the outcome and recorded no loss accrual at March 31.
- Under its settlement with major shareholder ChubeWorkx, Akers owes a 5% royalty on gross revenue until cumulative royalties reach $5 million. The agreement pledges specified company assets as security for obligations, subject to stated exceptions and conditions. Q1 royalty expense was $32,279.
- Management disclosed recurring losses and negative operating cash flows, and acknowledged possible near-term cash shortages. The company’s ability to meet its cash-flow expectations depends in part on revenue targets, financing and potential shareholder support.
- Q1 included $54,700 of health-and-wellness infomercial production costs and a $42,361 doubtful-account expense. Management characterized some elevated manufacturing costs as related to new products and not expected to recur.
Key facts for investors to verify
- Reconcile the reported May 10 liquidity figures with March 31 cash, securities and working capital, and assess the cash runway against continuing operating losses and cash burn.
- Track revenue conversion and customer dependence, including whether China reimbursement rates are established and whether newer distributors generate repeat orders.
- Monitor whether gross margin recovers toward management’s 65%–68% expectation and whether the higher Q1 production costs recur.
- Review dilution from the offerings and outstanding warrants, and the potential impact of future financing needs.
- Follow the Pulse litigation, the ChubeWorkx royalty and security arrangements, and the company’s ability to fund product development and regulatory milestones.