Filing summary
Issuer identity: The supplied filing is Transgenomic, Inc.’s Form 10-K, not a filing for Precipio, Inc. It reports the fiscal year ended December 31, 2012; the filing also provides unaudited fourth-quarter results. Filed March 14, 2013.
Business context and reporting period
Transgenomic operated three businesses: Clinical Laboratories (genetic testing), Pharmacogenomics Services (research and clinical-trial support), and Diagnostic Tools (WAVE systems, other instruments, and consumables). Its products and services focused on genetic testing and personalized medicine. The company acquired ScoliScore assay assets in September 2012.
Financial performance and liquidity
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Net sales | $31.480 million | $31.971 million |
| Gross profit / margin | $15.010 million / 48% | $18.437 million / 58% |
| Operating loss | $9.504 million | $2.972 million |
| Net loss | $8.327 million | $9.782 million |
| Net loss attributable to common stockholders | $8.987 million | $10.792 million |
| Basic and diluted loss per share | $0.13 | $0.22 |
| Operating cash flow | $(10.204) million | $0.220 million |
| Cash and cash equivalents at year-end | $4.497 million | $4.946 million |
| Working capital at year-end | $2.189 million | $0.870 million |
FY 2012 sales fell 2%. Clinical Laboratories revenue rose 9% to $17.453 million, Pharmacogenomics Services declined 18% to $1.876 million, and Diagnostic Tools fell 11% to $12.151 million. Gross margin weakened across all three segments. Selling, general and administrative expenses increased to $22.023 million from $19.150 million; R&D expense was $2.491 million.
Fourth-quarter 2012 net sales were $7.292 million, gross profit was $3.544 million, and net loss was $2.314 million. Fourth-quarter 2011 sales were $8.571 million, gross profit was $5.283 million, and net income was $0.264 million.
Cash used in investing activities was $4.878 million, including ScoliScore-related acquisition spending and capital expenditures; financing activities provided $14.604 million, principally from the 2012 equity financing. Year-end total assets were $38.791 million and total liabilities were $18.517 million. The company reported $6.171 million of debt due in 2013, all classified as current, plus $0.900 million of common-stock warrant liability. Contractual obligations totaled $15.354 million, including debt, leases, and purchase commitments.
Material changes and unusual items
- Operating loss widened substantially despite a smaller net loss, with the latter comparison affected by non-cash fair-value accounting: FY 2012 included $2.2 million of warrant-revaluation income, while FY 2011 included $6.1 million of preferred-stock and warrant expense.
- Receivables and inventory increased; the doubtful-account allowance rose to $2.171 million from $1.088 million. Management attributed operating cash use in part to a $2.9 million increase in accounts receivable and a $1.4 million increase in inventory.
- In February 2012, the company completed a private placement generating approximately $19.0 million gross, alongside conversion of $3.0 million in related-party notes. It issued common shares and warrants.
- After year-end, a January 2013 private placement raised approximately $8.3 million gross through 16.6 million shares and warrants for up to 8.3 million shares. The transaction also repriced and increased the number of shares issuable under the 2012 warrants.
- The $6.171 million secured note was overdue at December 31, 2012; the company disclosed that nonpayment constituted an event of default. A February 2013 forbearance agreement deferred lender remedies. In March 2013, the company entered a new secured facility: a revolving line with availability up to $4 million, subject to eligible receivables, and a $4 million term loan, intended to refinance outstanding debt and support working capital.
Outlook, commentary, and risks
Management anticipated growth across all three business units as it commercialized new and acquired tests, expanded markets, and developed technologies including C-GAAP, ScoliScore, NuclearMitome, and ICE COLD-PCR. It reported Medicare coverage for C-GAAP and described development and validation work for new products; these statements are not quantified financial guidance. Management said existing liquidity, together with the January 2013 placement proceeds, was expected to fund operations for at least 12 months.
Key disclosed risks include a history of operating losses, substantial operating cash use, dependence on future financing, the overdue secured debt and lender covenants, dilution from outstanding and newly issued warrants and shares, reimbursement and payer-mix pressure, competition, volatile trial-related service revenue, collection risk, laboratory-system disruption, regulatory and privacy compliance, and reliance on a single supplier for WAVE instrument modules. The company reported that a New Haven laboratory information system failure reduced processing capacity early in 2012; it believed capacity had been restored but cautioned that disruptions could recur.
The auditor issued an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective as of December 31, 2012. Management also reported effective disclosure controls. The company said ordinary-course claims were not expected to materially affect its financial position, results, or cash flows.
Important facts for investors to verify
- Confirm issuer and security identity: this document concerns Transgenomic, Inc. (OTC Bulletin Board symbol TBIO.OB), not Precipio, Inc.
- Review the debt default, February forbearance terms, and March 2013 secured refinancing, including collateral, financial covenants, repayment schedule, and actual borrowing availability.
- Assess whether the January 2013 financing and any subsequent cash generation were sufficient to address recurring operating cash burn and near-term obligations.
- Track receivable collectability, allowance adequacy, inventory realization, and whether gross margins recover from the 2012 decline.
- Evaluate dilution from the 2013 shares and warrants, repriced 2012 warrants, Series A preferred stock, and other outstanding options and conversion rights.
- Test commercial adoption and reimbursement for recently launched or acquired tests against management’s growth expectations.