Business context and reporting period
This is Transgenomic, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2013—not a filing under the name Precipio, Inc. The company operated in two segments: Laboratory Services, including clinical and pharmacogenomics testing, and Diagnostic Tools, including instruments and consumables.
Financial performance and position
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Net sales | $7.306 million | $9.093 million | $14.680 million | $16.299 million |
| Gross profit / margin | $3.410 million / 47% | $4.562 million / 50% | $7.091 million / 48% | $7.666 million / 47% |
| Operating loss | $2.922 million | $1.370 million | $6.743 million | $3.809 million |
| Net loss | $2.867 million | $0.563 million | $6.454 million | $3.259 million |
| Net loss per common share | $0.03 | $0.01 | $0.08 | $0.05 |
All dollar amounts above are U.S. dollars. Six-month operating cash use was $5.687 million, investing cash use was $1.361 million, and financing cash provided was $8.985 million. Cash rose to $6.388 million from $4.497 million at year-end 2012. At June 30, total debt was $8.0 million: a $4.0 million revolver and a $4.0 million term loan. Total liabilities were $18.345 million and stockholders’ equity was $21.018 million.
Material changes versus the prior comparable period
- Q2 revenue fell 20%; six-month revenue fell 10%. Laboratory Services revenue declined 31% in Q2 and 14% for the six-month period. Management cited lower test volumes and lower average prices; Q2 2012 also included tests deferred from Q1 because of a laboratory information management system failure.
- Diagnostic Tools revenue was nearly flat in Q2 and down 4% for the six-month period. Segment gross margin improved, while Laboratory Services margin weakened.
- Six-month SG&A increased to $12.157 million from $10.273 million, including a higher bad-debt provision and sales-force costs. R&D rose to $1.677 million from $1.202 million.
- In January, the company raised approximately $8.3 million gross by issuing 16.6 million shares at $0.50 and warrants for 8.3 million shares. Common shares outstanding increased to 88,245,725 at June 30 from 71,645,725 at December 31.
- In March, the company refinanced its prior $6.171 million note with the new secured revolver and term loan. The six-month results include a $0.6 million noncash gain from warrant revaluation.
Outlook, commentary, risks and unusual items
- Management anticipated growth in both segments as it commercialized new tests and technologies, and expected ScoliScore to contribute to revenue growth during 2013 and beyond. No quantified revenue or earnings guidance was provided.
- Management said available liquidity was expected to meet cash needs for at least 12 months, but also noted continued operating losses, reliance on debt or equity financing, and uncertainty about raising additional capital or achieving growth and cost reductions.
- Risks include reduced government and private-payer reimbursement, lower test volumes and pricing, customer budget constraints and long instrument sales cycles, competition, and foreign-exchange exposure. The company did not hedge currency risk.
- Debt is secured by substantially all assets and carries minimum-liquidity and revenue covenants, restrictions on additional borrowing and other actions, and a lender-discretionary acceleration provision. An August 2 amendment, effective June 30, reduced future minimum revenue covenants and changed revolver interest terms; the company reported compliance with the amended covenants as of June 30.
- The company recorded a $2.197 million six-month provision for doubtful accounts and wrote off approximately $2.0 million of prior-period receivables as uncollectible. A $0.3 million prior-year understatement of warrant liability was corrected in 2013. Management reported no material adverse effect expected from pending ordinary-course claims and no material changes to previously disclosed risk factors except the new loan-covenant risk.
Important facts for investors to verify
- Confirm the filing identity: the document is for Transgenomic, Inc.; the requested company name is Precipio, Inc.
- Reconcile the liquidity figures: the balance sheet lists current assets of $19.917 million and current liabilities of $7.914 million, while MD&A reports working capital of $12.730 million and current liabilities of $7.187 million. The filing text does not clearly reconcile this difference.
- Review receivable collectability, the substantial bad-debt provision and write-offs, and whether reimbursement changes affect future test economics.
- Assess cash runway and covenant headroom under the secured loan, including the amended terms and dependence on continued financing.
- Evaluate execution and reimbursement prospects for ScoliScore, CRC RAS can, C-GAAP and other commercial initiatives against the company’s stated growth expectations.