Precipio, Inc. (then Transgenomic, Inc.) — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. The filing identifies the registrant as Transgenomic, Inc.; the company name in the request differs from the filing.
Business context
The company operated two segments: Laboratory Services, including clinical testing and biomarker research, and Genetic Assays and Platforms, which sold instruments, reagents and related products. Management highlighted the planned commercialization of its MX-ICP mutation-detection technology through licensing and customer partnerships.
Financial performance and liquidity
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Net sales | $6.513 million | $6.251 million |
| Gross profit / margin | $2.974 million / 46% | $2.494 million / 40% |
| Operating loss | $2.647 million | $3.539 million |
| Net loss | $3.041 million | $4.176 million |
| Net loss available to common stockholders | $3.372 million | $4.406 million |
| Basic and diluted loss per share | $0.36 | $0.60 |
| Cash used in operating activities | $3.513 million | $3.866 million |
Revenue rose 4% year over year. Laboratory Services revenue increased 32% to $4.871 million, while Genetic Assays and Platforms revenue declined 36% to $1.642 million, partly because the Surveyor Kits product line had been sold in 2014. Laboratory Services gross margin improved to 55% from 44%; Genetic Assays and Platforms margin fell to 17% from 34%.
At March 31, 2015, cash was $5.379 million, working capital was $7.165 million, and total debt was $8.448 million, including $3.0 million drawn on the revolving line. Total liabilities were $24.446 million. Cash increased by $3.770 million during the quarter, principally because financing provided $7.293 million, including approximately $6.2 million net proceeds from a common-stock offering and proceeds from convertible notes. Operating activities consumed $3.513 million.
Material changes, outlook and risks
- In February, the company sold 3.574 million common shares with warrants for approximately $6.2 million net proceeds. Common shares outstanding were 11.857 million at quarter-end and 12.161 million as of April 21, 2015. Convertible-note conversions and warrants create additional potential dilution.
- Management stated that recurring losses and operating cash use create substantial doubt about the company’s ability to continue as a going concern. Continuing operations depend on revenue growth, better collections, possible asset sales and, if needed, additional financing; availability and terms are uncertain.
- On April 1, 2015, lenders waived specified defaults and amended the loan terms: monthly interest payments resumed, scheduled principal payments were deferred until April 2016, and an approximately $149,000 prepayment was due. The amendment also suspended the minimum-liquidity covenant until a specified event or March 31, 2016. The filing reported covenant compliance as of March 31.
- Management’s operating plan anticipated improved operating results, collections and monetization of underutilized assets, but provided no quantified financial guidance and cautioned that execution was uncertain.
- Key risks include reimbursement reductions by government and private payors, customer demand and long sales cycles for instruments, collection risk, competition, foreign-exchange exposure and the need for additional capital. The doubtful-account provision was $988,000 in Q1; management cited weaknesses in revenue-recognition and allowance-for-doubtful-accounts controls.
- Disclosure controls were deemed ineffective at March 31 because material weaknesses in financial reporting controls persisted. Remediation was underway but not yet fully implemented and tested. Management said pending ordinary-course claims were not expected to have a material adverse effect.
- Commercial developments included an expanded Exiqon license for LNA oligonucleotides and announcements that MX-ICP was available to biomarker research customers and would incorporate Horizon genomic reference standards.
Important facts for investors to verify
- Whether the company generated the planned revenue growth and improved collections, and whether operating cash burn declined.
- Cash runway, access to new financing or asset-sale proceeds, and the company’s ability to meet debt service and other obligations.
- Compliance with amended loan covenants and any further lender waivers, prepayments or amendments.
- Receivable collectability and the adequacy of the doubtful-account allowance, alongside progress on control remediation.
- Commercial adoption and revenue contribution from MX-ICP, and the effect of share issuance, note conversion and warrants on dilution.