Filing summary
Filer and period: The supplied filing is Transgenomic, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2015, not a filing identified as Precipio, Inc. The filing reports continuing operations as Laboratory Services and classifies the Genetic Assays and Platforms business as discontinued operations.
Financial results
Amounts are in U.S. dollars; financial statement figures below are in millions unless noted.
- Continuing-operations revenue: Q3 2015 was $3.96 million, down 3% from $4.06 million a year earlier. Nine-month revenue was $13.67 million, up 18% from $11.60 million, attributed to higher patient-testing and contract-laboratory volumes.
- Gross profit and margin: Q3 gross profit was $1.76 million, with a 45% margin versus $1.72 million and 42% in Q3 2014. Nine-month gross profit was $6.94 million, with a 51% margin versus $4.70 million and 41% a year earlier.
- Operating results: Continuing-operations operating loss was $8.92 million in Q3 and $14.06 million for nine months, compared with $3.99 million and $12.32 million, respectively, in 2014. The 2015 results include a $7.02 million non-cash impairment charge ($0.9 million property and equipment; $6.1 million intangible assets).
- Net results: Net loss was $7.30 million in Q3 2015 versus $0.08 million in Q3 2014; nine-month net loss was $13.62 million versus $8.15 million. Net loss available to common stockholders was $7.63 million and $14.61 million, respectively. Discontinued operations contributed income of $0.93 million in Q3 and $0.58 million for nine months, including a $1.53 million gain on the Columns Business sale.
- Cash flow and liquidity: Cash was $2.79 million at September 30, 2015, up from $1.61 million at year-end. Nine-month cash used in continuing operating activities was $9.66 million; total operating cash use, including discontinued operations, was $9.43 million. Financing provided $8.98 million, largely from equity offerings. Working capital was negative $43,000, versus positive $2.39 million at year-end.
- Debt: Total debt was $6.80 million, of which $6.28 million was classified as current because the revolving line and term loan mature September 1, 2016. The revolving line rate was 6.25% and term-loan rate 9.1%. The debt is secured by company assets.
Material changes and business developments
- The company sold its Columns Business to Edge BioSystems for approximately $2.1 million in cash in September 2015. It also entered a binding term sheet to sell remaining Genetic Assays and Platforms assets to ADSTEC for approximately $0.3 million, subject to definitive agreements and adjustments. Management expected that transaction to close in Q4 2015 and anticipated a loss on the remaining asset sale.
- The divestitures represent a strategic shift and the former business is presented as discontinued operations. Its revenue was $1.88 million for Q3 2015 and $5.72 million for the first nine months, versus $2.31 million and $7.79 million in the comparable 2014 periods.
- Common shares outstanding increased to 13,915,691 from 8,084,471 at December 31, 2014, following private placements and conversion of notes. The company also issued substantial warrants, including warrants exercisable at $0.01 per share; dilution and warrant terms merit attention.
- Q3 SG&A fell to $3.10 million from $5.06 million. Management attributed $1.0 million of the reduction to reversing an accrued liability; the remaining decrease reflected lower headcount, marketing and stock compensation costs.
Outlook, risks and unusual items
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern. Continued operations depend on revenue growth, improved collections, potential asset sales and, if needed, additional financing. Management said funding may not be available on acceptable terms or at all.
- Management plan: The operating plan assumes improved operating results and collections and monetization of underused assets; the filing gives no numerical guidance and says there is no assurance the plan can be achieved.
- Debt and covenants: The lenders waived specified defaults and amended terms in 2015. The company disclosed a prior borrowing-limit non-compliance, cured after a $0.7 million payment, and reported compliance with financial covenants at September 30. The loan agreement includes a lender subjective-acceleration clause and liens on company assets.
- Other risks: Revenue depends in part on government and private-payor reimbursement, which may be reduced. The company also cited cash-collection uncertainty, foreign-exchange exposure, and risk of Nasdaq delisting if listing requirements, including the minimum bid-price requirement, are not met.
- Controls: Disclosure controls were deemed ineffective because material weaknesses continued in revenue timing and recognition and in the allowance-for-doubtful-accounts process. Remediation was underway but not yet fully implemented or validated.
- Technology and commercialization: The filing describes MX-ICP technology, new research kits and clinical panels, a pilot liquid-biopsy study with biopharmaceutical firms, and an initial commercial license to the University of Melbourne. Commercial uptake and resulting revenue are uncertain.
Important facts for investors to verify
- Confirm the issuer identity: the supplied document names Transgenomic, Inc., while the request metadata names Precipio, Inc.
- Track cash burn, accounts-receivable collections, and financing needs against the company’s explicit going-concern warning.
- Verify completion and final proceeds or losses from the ADSTEC transaction and the remaining discontinued-operation asset sales.
- Review debt maturity, covenant compliance, lender waiver terms, and any subsequent refinancing or default developments.
- Assess dilution from issued shares, convertible notes, preferred-stock dividends and outstanding warrants, including the $0.01-exercise-price warrants.
- Monitor remediation of the material weaknesses and the company’s Nasdaq listing compliance.