Cancer Genetics Inc. (NASDAQ:CGIX) a cancer diagnostics company was taken public in Over the Counter Markets and graduated earlier this year to the NASDAQ. Year to date (August to now.) the stock is up almost 53%. However a peak into the financials of Cancer Genetics Inc. shows some big red flags towards the future profit potential of shareholders.
Every year for the last 4 years Cancer Genetics Inc. has racked up massive operating losses. Including nearly $40 million since 2009. In total the company has burned up more than $58 million dollars of paid in capital. It seems that most of the operating activity has been possible with issuance of new debt and common stock.
In fact the company just diluted shareholders again and sold another 3.2 million shares of stock. Raising another $42 million dollars to burn off.
All of this activity resulted in pretty substantial stock dilution as the company attempts to move forward as a going concern. A peak at the September 2013 10-Q shows that shareholders from 2012 have been diluted well over 300% from 1.34 million total shares in September 2012 to over 5 million as of September 2013. This is net of two reverse stock splits one in February and another in March. Both events reduced the number of the shares that stock holders had. Total net effect to 20% and then the company subsequently sold 3.2 million shares of stock in October of 2013 to raise another $42 million dollars to fund operations. Meaning the pro forma balance sheet contains a decent amount of cash but there is not much business to back up how this company gets to profitability.
This latest public raise in October means total paid in capital stands at $105,932,147. With $52 million on the balance sheet. A nice chunk if the company doesn't manage to flush it all as they have in the past.
From the Q: "We believe that our current cash resources are sufficient to satisfy our liquidity requirements for at least two years even if we are unable to secure an extension of the Wells Fargo debt. Our forecast of the period of time through which our financial resources will be adequate to support our operations and the costs to support our general and administrative, sales and marketing and research and development activities are forward-looking statements and involve risks and uncertainties."
Risks: "We operate in an industry that is subject to intense competition, government regulation and rapid technological change. Our operations are subject to significant risk and uncertainties including financial, operational, technological, regulatory and other risks, including the potential risk of business failure."
Clients: "The top five test ordering sites during the three months ended September 30, 2013 and 2012 accounted for 75% and 61% respectively, of our clinical testing volumes, with 36% and 56% respectively, of the volume coming from community hospitals. During the three months ended September 30, 2013, there were two sites which accounted for more than 10% of our revenue: a clinical trial client accounted for approximately 44% of our revenue, and; a community hospital accounted for approximately 10%. During the three months ended September 30, 2012, there were three sites which each accounted for 10% or more of our clinical revenue: a clinical trial client accounted for approximately 15%; a university teaching center accounting for approximately 12%, and; a community hospital network accounted for approximately 10%."
That does not bode well for shareholder hope of growth when so few clients make up most of the revenue of CGIX. One clinical trial client accounted for 44% of the revenue. Meaning if that client finishes their need for Cancer Genetics services they will be looking to fill a gaping hole in an already tiny stream of revenue.
Despite the recent influx of cash from the further dilution of CGIX stock I think the likelihood of needing more money to stay in business is pretty great. I would expect that the share price which has ranged between $7 and $23.25 this year will get cheaper and trade in the Sub $10 arena until the company can find a stable path to growth and profitability not currently in sight.
Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in CGIX over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.