Akers Biosciences, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; balance-sheet comparisons are to December 31, 2014. The company develops and sells rapid diagnostic tests, including point-of-care assays and breath tests.
Financial performance and position
| Metric | Q1 2015 | Q1 2014 / comparison |
|---|---|---|
| Total revenue | $510,047 | $1,173,919; down 57% |
| Gross profit / margin | $283,706 / 56% | $569,596 / 49% |
| Operating loss | $1,360,197 | $613,365 |
| Net loss | $1,321,799 | $595,600 |
| Loss per share, basic and diluted | $0.26 | $0.14 |
| Cash used in operating activities | $1,241,976 | $832,370 |
| Cash and marketable securities | $8,394,553 at March 31 | Cash was $336,243; marketable securities were $8,058,310 |
Revenue fell primarily because ChubeWorkx product revenue was nil, compared with $766,379 in Q1 2014, following France’s indefinite postponement of a breathalyzer requirement for drivers. MPC product sales declined 95%. Domestic PIFA Heparin/PF4 sales rose 17% to $338,361. The filing reports gross margin improvement, attributing it to higher average product selling prices.
Sales and marketing expense rose 173% to $575,252, and research and development expense increased 21% to $305,574. Administrative expense was $698,434, up from $653,682 including related-party expense in the prior-year period. The company reported no income tax benefit on losses.
At March 31, current assets were $11.81 million, current liabilities $1.15 million, and working capital $10.66 million. Total assets were $15.36 million and total liabilities $1.15 million; the balance sheet lists no debt at period-end. Equity was $14.21 million, with an accumulated deficit of $86.19 million. Cash declined by $119,598 during the quarter. Investing activities provided $1.12 million, primarily reflecting $1.25 million of marketable-security sale proceeds; there were no financing cash flows in the quarter.
Material changes and developments
- Revenue and earnings weakened year over year, while operating cash use increased.
- Sales and marketing and R&D spending increased as the company expanded commercial activity and product development.
- The company invested $64,675 for a 19.9% interest in Hainan Savy Akers Biosciences, Ltd., a China joint venture, accounted for using the cost method.
- On January 9, the company issued 190,000 restricted shares to directors and officers for 2014 services; the $697,300 expense had been recorded in 2014. Shares outstanding at March 31 were 5,144,837.
Outlook, risks, and unusual items
- Management expects operating losses to continue in the near term and says losses could be significant. It stated that working capital should cover estimated cash needs for at least 36 months, while emphasizing ongoing cash and expense monitoring. This is management’s estimate, not a revenue or earnings forecast.
- Planned spending includes product development, clinical trials, regulatory work, commercialization, and marketing. Capital expenditures for 2015 were estimated at approximately $250,000.
- Commercialization and regulatory risks include obtaining FDA clearance or CE marking, achieving product performance that meets market needs, and generating sufficient sales. The company cautions that failure in these areas could require alternative business opportunities and could impair patents.
- Two customers generated 66% of Q1 2015 product revenue, creating potential near-term vulnerability if those relationships end. Two suppliers represented 45% of purchases.
- A $864,000 receivable from related party Thirty Six Strategies (36S) relates to a 2014 sale. Collection and return exposure depend in part on Australian TGA approval; the filing says the sale could be returned if approval is denied and management considers denial unlikely. The filing also identifies a $1 million receivable payable in two $500,000 installments in April and July 2015.
- The company holds a $1.43 million related-party note receivable from major shareholder ChubeWorkx, bearing 5% interest and payable in installments. The March payment was delayed because of an invalid bank account number; the filing says it was received with the April installment on April 16.
- A contract dispute with Lawrence Martin was in discovery. The company stated that it had not accrued a potential loss. No other pending litigation was reported.
- Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting. No significant off-balance-sheet arrangements were disclosed.
Important facts for investors to verify
- Whether revenue can recover from the loss of ChubeWorkx breathalyzer orders and whether PIFA sales growth continues.
- Actual cash burn and the assumptions underlying management’s estimate that working capital will fund at least 36 months of needs.
- Collection of the 36S receivable and the $1 million installment receivable, including the status of Australian TGA approval and any return rights.
- Repayment performance on the ChubeWorkx related-party note and the company’s broader related-party exposures.
- Customer and supplier concentration, product regulatory progress, and the outcome or financial exposure of the Martin dispute.