Atossa Genetics, Inc. 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2013. The filing identifies the registrant as Atossa Genetics, Inc. (the metadata references Atossa Therapeutics, Inc.). The company was a development-stage healthcare company commercializing breast-cancer risk assessment tests and related collection devices through its CLIA-certified National Reference Laboratory for Breast Health.
Financial position and operating results
| Metric | Three months ended June 30, 2013 | Six months ended June 30, 2013 | Comparable period |
|---|---|---|---|
| Total revenue | $326,078 | $508,748 | $223,097 and $277,810, respectively |
| Gross profit | $103,918 | $220,124 | $205,309 and $233,018, respectively |
| Gross margin | 31.9% | 43.3% | 92.0% and 83.9%, respectively |
| Operating expenses | $2,687,265 | $4,744,904 | $1,371,121 and $2,460,998, respectively |
| Operating loss | $2,583,347 | $4,524,780 | $1,165,812 and $2,227,980, respectively |
| Net loss | $2,583,699 | $4,525,139 | $1,167,948 and $2,230,867, respectively |
| Basic and diluted loss per share | $0.17 | $0.32 | $0.10 and $0.20, respectively |
- Revenue increased 46% in the quarter and 83% for the six months, principally because of a $205,590 initial order from Millennium Medical Devices for 10,000 ForeCYTE kits.
- Diagnostic testing revenue was $120,488 for the quarter and $289,718 year to date. Product sales were $205,590 and $219,030, respectively.
- Product sales generated losses at the gross-profit level: $14,214 in the quarter and $19,639 for the six months. Diagnostic testing generated gross profit of $118,132 and $239,763, respectively.
- Operating expenses rose sharply, driven primarily by general and administrative costs, stock-based compensation, consulting and professional fees, regulatory and investor-relations activity, and increased sales and marketing expenditures.
- Cash used in operating activities was $3,444,090 for the six months, compared with $1,816,646 in the prior-year period. Cash used in investing activities was $89,870.
- Financing activities provided $4,248,275, primarily from equity issuances and warrants. Cash increased from $1,725,197 at December 31, 2012 to $2,439,512 at June 30, 2013.
- Total assets were $10,055,002, including $2,439,512 of cash, $2,347,701 of prepaid expenses and $4,457,619 of net intangible assets. Current liabilities were $1,774,170. The filing does not report outstanding bank or related-party debt at June 30, 2013.
- Stockholders’ equity was $8,280,832, compared with $5,175,535 at December 31, 2012. The accumulated deficit was $14,257,045.
Material changes versus the prior comparable period
- The company transitioned from an initial marketing phase toward broader commercialization, including the national ForeCYTE launch, new distribution arrangements with Millennium Medical Devices and Fisher Healthcare, and expansion of its direct sales force.
- General and administrative expense increased 210% in the quarter and 187% for the six months. Selling expense increased 158% and 205%, respectively, while research and development expense declined 65% and 57% as initial MASCT development was substantially completed.
- The company issued 933,333 shares to Aspire Capital through June 30, 2013, including 250,000 commitment-fee shares, for $3,969,740 in gross proceeds. It also issued substantial shares upon warrant exercises and granted 1,302,654 stock options during the first six months.
- Prepaid expenses increased substantially, primarily due to a $2,188,542 prepaid stock purchase agreement service fee.
- The company acquired Acueity assets in September 2012, including patents, patent applications and FDA marketing authorizations. Management stated that the assets were not yet receiving significant human or financial resources other than approximately $50,000 of patent-related expenditures.
Guidance, outlook, risks and unusual items
- Management expected existing resources to fund planned operations for at least four months from the report date, but estimated a need for $4 million to $10 million of additional capital to fund operations for at least 12 months under its then-current plan.
- The financial statements contain a going-concern uncertainty. The company had not established recurring revenue sufficient to cover operating costs and stated that it could be forced to cease operations if adequate capital were unavailable.
- Management expected continued operating losses and increasing cash usage while scaling manufacturing, expanding sales and marketing, developing additional tests and operating its laboratory.
- The FDA issued a February 21, 2013 warning letter concerning the MASCT System, including alleged changes requiring an additional 510(k) notification, marketing practices and current Good Manufacturing Practice matters. The company responded on March 13, 2013 and recorded no liability, but acknowledged that potential liability could change.
- Former President Robert Kelly seeks at least $450,000 in connection with a terminated consulting agreement and related claims; a separate claim by Victor Cononi does not specify damages. No liability was recorded, although the company stated that an adverse outcome remains reasonably possible.
- The MASCT System was frequently sold below manufacturing cost, and the company recognized no additional inventory write-down for the six months ended June 30, 2013. The filing states that the system’s net realizable value had been reduced to zero for inventory valuation purposes.
- Subsequent to quarter-end, the company sold 200,000 additional shares to Aspire Capital for aggregate gross proceeds of $930,165. It also entered into an additional office lease at $4,500 per month beginning in August 2013.
- At June 30, 2013, $2,189,512 of cash exceeded FDIC insurance limits.
Investor verification points
- Verify the registrant’s corporate name and ticker history, because the filing states Atossa Genetics, Inc. while the request metadata identifies Atossa Therapeutics, Inc.
- Reconcile revenue growth with the one-time or initial Millennium order and assess recurring diagnostic-service volume, reimbursement and collection trends.
- Assess the company’s gross-margin profile, particularly continued product sales below cost and the effect of inventory valuation assumptions.
- Review available funding under the Aspire Capital agreement, actual share issuances and the resulting dilution, including subsequent-period issuances.
- Evaluate whether the projected $4 million to $10 million financing requirement was satisfied and whether the going-concern uncertainty remained resolved.
- Monitor FDA remediation, potential additional 510(k) requirements, manufacturing compliance and any consequences for MASCT commercialization.
- Review the status and potential exposure of the Kelly and Cononi claims, which were not accrued in the financial statements.