Business context and reporting period
The supplied 10-Q is for Transgenomic, Inc., for the quarter ended March 31, 2013; it does not identify Precipio, Inc. as the registrant. The company operated Laboratory Services and Diagnostic Tools businesses. Financial results are unaudited and in U.S. dollars unless otherwise stated.
Key financial metrics
| Metric | Q1 2013 | Q1 2012 / comparison |
|---|---|---|
| Revenue | $7.374 million | $7.206 million; up 2% |
| Gross profit / margin | $3.681 million / 50% | $3.104 million / 43% |
| Operating loss | $3.820 million | $2.439 million |
| Net loss | $3.586 million | $2.696 million |
| Net loss attributable to common stockholders | $3.767 million; $0.04 per share | $2.861 million; $0.05 per share |
| Operating cash flow | $(3.334) million | $(2.760) million |
| Capital spending and acquisition cash outflow | $(1.063) million | $(0.265) million |
| Cash from financing | $7.668 million | $17.349 million |
At March 31, 2013, cash was $7.729 million, working capital was $12.100 million, total assets were $41.398 million, and total liabilities were $17.329 million. Debt totaled $6.433 million, including a $2.433 million revolving-line balance and a $4.000 million term loan. The new facility provides up to $4.0 million of revolving availability, subject to eligible receivables. Management said it believed available liquidity would cover expected needs for at least 12 months, while cautioning that continued operations could require additional capital.
Material changes versus the prior comparable period
- Laboratory Services revenue rose 11% to $4.427 million; Diagnostic Tools revenue fell 8% to $2.947 million, primarily because fewer instruments were sold.
- Gross margin improved in both segments: Laboratory Services to 50% from 41%, and Diagnostic Tools to 50% from 45%.
- SG&A increased to $6.737 million from $4.994 million, reflecting higher sales-force costs and bad-debt expense. R&D increased to $0.764 million from $0.549 million.
- Cash used in operations increased by $0.574 million. A $1.581 million provision for doubtful accounts and a $1.474 million increase in receivables were notable operating-cash-flow factors.
- Cash rose by $3.232 million, principally due to financing: the company raised approximately $8.3 million gross in a January stock-and-warrant offering and entered into new debt financing. It used the new facility to repay the prior $6.171 million PGxHealth note.
- Common shares outstanding increased to 88.246 million from 71.646 million at year-end; 26.644 million warrants were outstanding at quarter-end.
Outlook, risks, contingencies, and unusual items
- Management anticipated growth in both segments during 2013 and beyond. It expected ScoliScore to contribute to revenue growth and cited sales and marketing efforts, payer-coverage work, clinical collaborations, and potential pharmaceutical study contracts. No quantified revenue or earnings guidance was provided.
- The company remained historically loss-making and did not consistently generate enough operating cash to cover expenses. Management said future liquidity depended in part on growing sales, controlling costs, and/or raising capital.
- Key risks include payer reimbursement and coverage, customer budget constraints and long instrument sales cycles, competition, foreign-exchange exposure, and the ability to commercialize new tests and technologies.
- The March 2013 loan is secured by substantially all assets and includes minimum liquidity and revenue covenants and restrictions on additional debt and certain transactions. The company reported compliance with financial covenants at quarter-end; default could accelerate repayment and increase interest rates.
- A $0.400 million noncash gain from remeasuring warrant liability reduced reported other expense. The liability was $0.500 million at quarter-end and is a Level 3 fair-value estimate.
- Vendor commitments were $2.4 million; future operating lease payments included approximately $0.8 million for the remainder of 2013. Management said pending ordinary-course claims were not expected to have a material adverse effect. No material subsequent events were disclosed.
Important facts for investors to verify
- Confirm the registrant identity: this filing names Transgenomic, Inc., despite the request metadata naming Precipio, Inc.
- Assess receivable collectability, the $1.581 million doubtful-account provision, and whether receivables and payer collections support reported revenue.
- Review cash burn, borrowing availability, covenant headroom, and the assumptions behind management’s 12-month liquidity assessment.
- Evaluate dilution from the 16.6 million-share offering and outstanding warrants, including related-party participation and warrant terms.
- Track evidence of ScoliScore adoption and reimbursement, and whether the anticipated growth in new tests and collaborations materializes.