Akers Biosciences, Inc. — Q1 2014 Form 10-Q
Business and period. The company develops and sells rapid, single-use diagnostic tests, including breath alcohol and Heparin/PF4 assays. This unaudited report covers the three months ended March 31, 2014, compared with Q1 2013; the balance sheet is compared with December 31, 2013.
Financial results and position
| Metric | Q1 2014 | Q1 2013 / comparison |
|---|---|---|
| Revenue | $1.174 million | $1.585 million; down 26% |
| Gross profit | $569,596 | $809,058 |
| Gross margin on product revenue | 45% | 40% |
| Operating loss | $(613,365) | $(31,885) |
| Net income (loss) | $(595,600) | $60,368 |
| Basic and diluted EPS | $(0.14) | $0.05 |
| Operating cash flow | $(832,370) | $(420,080) in cash flow statement |
- Revenue fell mainly because MPC product sales declined, particularly orders from distributor and shareholder Chubeworkx, and because Q1 2013 included a one-time $200,000 license fee. Chubeworkx-related product revenue was approximately $766,000 versus $920,000.
- Cost of sales declined 22% to approximately $604,000. Management attributed the higher product gross margin to improved average selling prices and lower indirect production costs.
- Administrative expenses rose 122% to $653,682, primarily due to IPO-related professional, regulatory, staffing, and investor-relations costs. Sales and marketing expense declined 10%; R&D expense increased 2% to $253,538.
- Other income was $17,765, versus $92,253 in Q1 2013; the prior period included a $91,286 insurance demutualization gain. Q1 2014 included $10,697 of interest and dividend income.
- At March 31, cash was $305,809 and marketable securities were $12.498 million; current assets totaled $15.163 million and current liabilities $943,318, for working capital of approximately $14.220 million. Total assets were $17.783 million and equity $16.617 million.
- The company reported no short-term notes payable at quarter-end; a $307,500 related-party bridge loan plus $969 interest was repaid in January. Deferred revenue related to Chubeworkx remained $555,556.
- The January IPO issued 2,727,000 shares and generated net proceeds of $13.101 million. Shares outstanding increased from 2,167,837 at year-end to 4,894,837 at March 31.
Outlook, risks, and notable items
- No specific revenue or earnings guidance is provided. Management expects near-term operating losses, potentially significant, as it funds product development, clinical and regulatory work, and commercialization.
- Management stated that working capital should cover estimated cash needs for at least 36 months. Planned 2014 capital expenditures were approximately $250,000, mainly for production, laboratory, and facility improvements.
- Key plans include expanding distribution of PIFA Heparin/PF4 assays and supporting international breathalyzer sales, while advancing METRON, VIVO, PIFA PLUSS infectious-disease tests, Breath Ketone Check, and Breath PulmoHealth Check. Regulatory clearances, market adoption, and adequate product revenues remain important uncertainties.
- Customer concentration is significant: two customers represented 86% of Q1 revenue, and three customers represented approximately 92% according to the credit-risk disclosure. Related-party receivables from Chubeworkx were $1.476 million. Three suppliers represented 58% of purchases.
- Management concluded disclosure controls were ineffective because existing controls were outdated and designed primarily for IFRS rather than U.S. GAAP reporting. The company planned to engage an accounting firm to update controls, with implementation targeted by year-end.
- After quarter-end, the company agreed to settle the RBD dispute for $25,000 and a separate Kolasinski matter for $10,000 plus a 2% commission on eligible gross sales through December 10, 2018, capped at $50,000. As of May 13, final settlement documents had not been executed.
Investor verification points
- Reconcile operating cash flow: the cash flow statement reports Q1 2013 cash used of $420,080, while MD&A states $420,820.
- Assess the sustainability of revenue given dependence on a small customer base, including the related-party distributor, and the high related-party receivable balance.
- Track the use and liquidity of IPO proceeds and marketable securities, alongside continued operating cash burn and management’s 36-month liquidity estimate.
- Monitor progress on U.S. GAAP disclosure-control remediation, product regulatory milestones, and commercial uptake.
- Confirm execution and final financial terms of the two post-quarter legal settlements.