Atossa Genetics, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2014. The filing identifies the registrant as Atossa Genetics, Inc. (now associated with Atossa Therapeutics, Inc. in the request metadata). The company develops breast-health laboratory tests, medical devices and potential therapeutics through its wholly owned, CLIA-certified laboratory subsidiary.
Financial highlights
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Total revenue | $9,875, versus $326,078 in 2013 | $33,999, versus $508,748 in 2013 |
| Gross profit | $9,875, versus $103,918 in 2013 | $33,999, versus $220,124 in 2013 |
| Operating expenses | $3.20 million, versus $2.69 million | $5.63 million, versus $4.74 million |
| Operating loss | $3.19 million, versus $2.58 million | $5.60 million, versus $4.52 million |
| Net loss | $3.19 million, or $0.23 per share | $5.60 million, or $0.24 per share |
| Net cash used in operating activities | Not provided for the quarter | $4.86 million, versus $3.44 million |
Gross margin was effectively 100% in the 2014 periods because reported revenue had no associated cost of revenue; however, revenue was immaterial. Selling expenses declined 22% for the six-month period, while research and development expenses increased 128% and general and administrative expenses increased 13%.
Cash and cash equivalents were $14.30 million at June 30, 2014, compared with $6.34 million at December 31, 2013. Total assets were $19.82 million and total current liabilities were $1.56 million. Stockholders’ equity was $18.26 million. The filing reports no material long-term debt balance; deferred financing costs were $501,961.
Material changes versus the prior comparable period
- Revenue declined approximately 97% for both the quarter and six-month period, primarily because the company’s voluntary recall halted product sales and virtually eliminated laboratory-services revenue.
- The company recorded a $5.60 million six-month net loss, compared with $4.53 million in the prior-year period.
- Research and development spending increased substantially as the company advanced the NextCYTE test, FullCYTE microcatheters and other products under development.
- Operating cash use increased by approximately $1.41 million year over year.
- On January 29, 2014, the company raised approximately $14.0 million in gross proceeds through a public offering of 5,834,234 units, each including common stock and warrants. Net financing cash inflow for the six months was $13.01 million.
- Shares outstanding increased to 24,444,058 at June 30, 2014 from 18,574,334 at December 31, 2013; dilution also remains possible from outstanding options and warrants.
Liquidity, outlook and risks
Management states that existing resources were expected to fund planned operations through the remainder of 2014, but the company has not established recurring revenue sufficient to cover operating costs. The financial statements include a going-concern disclosure: continued operations depend on additional capital, successful commercialization and eventual profitability. Management expects continuing operating losses and increasing cash use and may require additional financing earlier than anticipated.
The ForeCYTE Breast Aspirator, formerly the MASCT System, was voluntarily recalled in October 2013 and could not be marketed or distributed in the United States pending FDA clearance. The company submitted a new 510(k) application and received an FDA request for additional information, with a response due August 20, 2014. A March 2014 FDA inspection identified five Form 483 observations and additional discussion points. Failure to address FDA concerns or obtain clearance could materially impair commercialization.
Recall-related expenses totaled $390,812 through June 30, 2014, with $12,028 of remaining recorded recall liability. The company also disclosed operating lease commitments of $1.23 million, an Affymetrix purchase commitment of up to $647,700 plus service costs, and potential future milestone payments to A5 Genetics of up to $1.2 million.
Pending litigation includes claims by former President Robert Kelly and Victor Cononi, for which no liability was recorded, and a securities class action relating to the 2012 initial public offering and statements concerning the company’s products and testing processes. The potential exposure cannot currently be reasonably estimated.
Additional risks include possible increased FDA regulation of laboratory-developed tests, reimbursement uncertainty, dependence on financing, product-development and commercialization risk, potential share dilution, and the absence of a reliable recurring revenue base.
Important facts for investors to verify
- Whether the FDA cleared the ForeCYTE Breast Aspirator and whether the company successfully relaunched the product.
- The company’s subsequent cash burn, financing activity and liquidity after June 30, 2014.
- The status and potential financial impact of the securities class action and other legal claims.
- Whether laboratory-developed-test regulation imposed additional clearance, compliance or cost requirements.
- Actual progress toward recurring laboratory-service and product revenue and profitability.
- The dilution impact of approximately 6.03 million outstanding warrants and 3.61 million outstanding stock options at June 30, 2014.