prog-10q_20200630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2020

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                     to

Commission File Number: 001-39334

 

 

Progenity, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

27-3950390

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

4330 La Jolla Village Drive, Suite 200, San Diego, CA

 

92122

(Address of principal executive offices)

 

(Zip Code)

 

(855) 293-2639

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

 

 

Common Stock, par value $0.001 per share

 

PROG

 

The Nasdaq Global Market

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes      No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

 

  

Small reporting company

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes      No

As of July 31, 2020, the registrant had 46,548,035 shares of common stock, par value $0.001 per share, outstanding.

 

 

 


 

Progenity, Inc.

INDEX

 

PART I—FINANCIAL INFORMATION

 

 

 

 

 

Item 1.

 

Financial Statements (unaudited)

 

1

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets - As of June 30, 2020, and December 31, 2019

 

1

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations - Three and Six Months Ended June 30, 2020, and 2019

 

2

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Deficit - Three and Six Months Ended June 30, 2020, and 2019

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2020, and 2019

 

5

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

7

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

29

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

44

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

44

 

PART II—OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

45

 

 

 

 

 

Item 1A.

 

Risk Factors

 

49

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

97

 

 

 

 

 

Item 6.

 

Exhibits

 

98

 

 

 

 

Signatures

 

99

 

 

TRADEMARKS AND CERTAIN TERMS

In this Quarterly Report on Form 10-Q, “Progenity,” “we,” “us” and “our” refer to Progenity, Inc., and our wholly-owned subsidiaries on a consolidated basis, unless the context otherwise provides.

Progenity® is a registered service mark of Progenity. Any other brand names or trademarks appearing in this Quarterly Report on Form 10-Q are the property of their respective holders.

 

 

i


 

PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements.

PROGENITY, INC.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

 

 

 

June 30,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

113,613

 

 

$

33,042

 

Accounts receivable, net

 

 

14,382

 

 

 

22,189

 

Inventory

 

 

10,246

 

 

 

10,937

 

Income tax receivable

 

 

15,596

 

 

 

634

 

Prepaid expenses and other current assets

 

 

6,130

 

 

 

7,846

 

Total current assets

 

 

159,967

 

 

 

74,648

 

Property and equipment, net

 

 

15,725

 

 

 

15,891

 

Other assets

 

 

198

 

 

 

198

 

Goodwill

 

 

6,219

 

 

 

6,219

 

Other intangible assets, net

 

 

4,307

 

 

 

4,771

 

Total assets

 

$

186,416

 

 

$

101,727

 

Liabilities and Stockholders' Deficit

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

15,679

 

 

$

15,754

 

Accrued expenses and other current liabilities

 

 

78,410

 

 

 

83,615

 

Current portion of mortgages payable

 

 

247

 

 

 

241

 

Current portion of capital lease obligations

 

 

516

 

 

 

727

 

Total current liabilities

 

 

94,852

 

 

 

100,337

 

Capital lease obligations, net of current portion

 

 

156

 

 

 

358

 

Mortgages payable, net of current portion

 

 

2,950

 

 

 

3,081

 

Note payable to related party, net of unamortized discount of $5,930 and $6,034

   as of June 30, 2020 and December 31, 2019, respectively

 

 

69,071

 

 

 

68,966

 

Other long-term liabilities

 

 

36,547

 

 

 

12,859

 

Total liabilities

 

$

203,576

 

 

$

185,601

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' deficit:

 

 

 

 

 

 

 

 

Common stock – $0.001 par value. 350,000,000 and 300,000,000 shares authorized as

   of June 30, 2020 and December 31, 2019, respectively; 50,022,606 and 8,451,415 shares

   issued as of June 30, 2020 and December 31, 2019, respectively; 46,548,035 and

   4,976,843 shares outstanding as of June 30, 2020 and December 31, 2019, respectively

 

 

50

 

 

 

9

 

Series A Preferred Stock – $0.001 par value. 4,120,000 shares authorized, issued and

   outstanding as of December 31, 2019; no shares authorized, issued and outstanding

   as of June 30, 2020

 

 

 

 

 

4

 

Series B Preferred Stock – $0.001 par value. 126,035,000 shares authorized as of

   December 31, 2019; 101,867,405 shares issued and outstanding as of December 31, 2019,

   respectively. No shares authorized, issued and outstanding as of June 30, 2020

 

 

 

 

 

102

 

Additional paid-in capital

 

 

420,242

 

 

 

283,260

 

Accumulated deficit

 

 

(418,681

)

 

 

(348,478

)

Treasury stock – at cost; 3,474,572 shares of common stock as of June 30, 2020 and

   December 31, 2019

 

 

(18,771

)

 

 

(18,771

)

Total stockholders' deficit

 

 

(17,160

)

 

 

(83,874

)

Total liabilities and stockholders' deficit

 

$

186,416

 

 

$

101,727

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

1


 

PROGENITY, INC.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenues

 

$

17,266

 

 

$

57,230

 

 

$

34,094

 

 

$

104,737

 

Cost of sales

 

 

21,835

 

 

 

26,113

 

 

 

48,405

 

 

 

50,534

 

Gross profit (loss)

 

 

(4,569

)

 

 

31,117

 

 

 

(14,311

)

 

 

54,203

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

12,234

 

 

 

16,463

 

 

 

23,474

 

 

 

31,711

 

Selling and marketing

 

 

12,736

 

 

 

14,680

 

 

 

27,172

 

 

 

30,247

 

General and administrative

 

 

17,181

 

 

 

14,272

 

 

 

34,289

 

 

 

28,550

 

Total operating expenses

 

 

42,151

 

 

 

45,415

 

 

 

84,935

 

 

 

90,508

 

Loss from operations

 

 

(46,720

)

 

 

(14,298

)

 

 

(99,246

)

 

 

(36,305

)

Interest expense

 

 

(2,507

)

 

 

(2,282

)

 

 

(4,809

)

 

 

(4,551

)

Interest and other income (expense), net

 

 

(3,556

)

 

 

171

 

 

 

(3,576

)

 

 

428

 

Loss before income taxes

 

 

(52,783

)

 

 

(16,409

)

 

 

(107,631

)

 

 

(40,428

)

Income tax benefit

 

 

 

 

 

 

 

 

(37,696

)

 

 

 

Net loss

 

 

(52,783

)

 

 

(16,409

)

 

 

(69,935

)

 

 

(40,428

)

Dividend paid to preferred stockholders

 

 

(268

)

 

 

 

 

 

(268

)

 

 

(3,652

)

Net loss attributable to common stockholders

 

$

(53,051

)

 

$

(16,409

)

 

$

(70,203

)

 

$

(44,080

)

Net loss per share attributable to common stockholders,

   basic and diluted

 

$

(6.11

)

 

$

(3.34

)

 

$

(10.26

)

 

$

(9.16

)

Weighted average number of shares outstanding used in calculating

   net loss per share attributable to common stockholders, basic

   and diluted

 

 

8,687,250

 

 

 

4,915,485

 

 

 

6,840,321

 

 

 

4,811,143

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

2


 

PROGENITY, INC.

Condensed Consolidated Statements of Stockholders’ Deficit

(In thousands, except share data)

(Unaudited)

 

 

 

Common Stock

 

 

Series A and A-1

Preferred Stock

 

 

Series B Preferred Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Treasury Stock

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Shares

 

 

Amount

 

 

Deficit

 

Balance at December 31, 2019

 

 

8,451,415

 

 

$

9

 

 

 

4,120,000

 

 

$

4

 

 

 

101,867,405

 

 

$

102

 

 

$

283,260

 

 

$

(348,478

)

 

 

(3,474,572

)

 

$

(18,771

)

 

$

(83,874

)

Issuance of common stock upon exercise

   of options

 

 

56,729

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

103

 

 

 

 

 

 

 

 

 

 

 

 

103

 

Issuance of Series B Preferred Stock, net

   of issuance cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,033,796

 

 

 

6

 

 

 

14,066

 

 

 

 

 

 

 

 

 

 

 

 

14,072

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,057

 

 

 

 

 

 

 

 

 

 

 

 

2,057

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,152

)

 

 

 

 

 

 

 

 

(17,152

)

Balance at March 31, 2020

 

 

8,508,144

 

 

$

9

 

 

 

4,120,000

 

 

$

4

 

 

 

107,901,201

 

 

$

108

 

 

$

299,486

 

 

$

(365,630

)

 

 

(3,474,572

)

 

$

(18,771

)

 

$

(84,794

)

Issuance of common stock upon exercise

   of options

 

 

20,880

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

45

 

 

 

 

 

 

 

 

 

 

 

 

45

 

Issuance of common stock upon initial

   public offering, net

 

 

6,666,667

 

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

88,658

 

 

 

 

 

 

 

 

 

 

 

 

88,665

 

Issuance of Series B Preferred Stock, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,444,444

 

 

 

4

 

 

 

9,929

 

 

 

 

 

 

 

 

 

 

 

 

9,933

 

Automatic conversion of preferred stock

 

 

33,443,562

 

 

 

33

 

 

 

(4,120,000

)

 

 

(4

)

 

 

(112,345,645

)

 

 

(112

)

 

 

83

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock upon conversion

   of debt

 

 

1,250,000

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,749

 

 

 

 

 

 

 

 

 

 

 

 

18,750

 

Issuance of Stock Purchase Warrant

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

268

 

 

 

(268

)

 

 

 

 

 

 

 

 

 

Issuance of common stock upon vesting

   of restricted stock unit awards

 

 

133,353

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,024

 

 

 

 

 

 

 

 

 

 

 

 

3,024

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(52,783

)

 

 

 

 

 

 

 

 

(52,783

)

Balance at June 30, 2020

 

 

50,022,606

 

 

$

50

 

 

 

 

 

$

 

 

 

 

 

$

 

 

$

420,242

 

 

$

(418,681

)

 

 

(3,474,572

)

 

$

(18,771

)

 

$

(17,160

)

 

3


 

PROGENITY, INC.

Condensed Consolidated Statements of Stockholders’ Deficit

(In thousands, except share data)

(Unaudited)

 

 

 

Common Stock

 

 

Series A and A-1

Preferred Stock

 

 

Series B Preferred Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Treasury Stock

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Shares

 

 

Amount

 

 

Deficit

 

Balance at December 31, 2018

 

 

8,112,581

 

 

$

8

 

 

 

5,620,000

 

 

$

6

 

 

 

14,164,306

 

 

$

14

 

 

$

124,244

 

 

$

(142,469

)

 

 

(3,474,572

)

 

$

(18,771

)

 

$

(36,968

)

Adoption of accounting standard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23,666

 

 

 

 

 

 

 

 

 

23,666

 

Issuance of common stock upon exercise

   of options

 

 

268,549

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

322

 

 

 

 

 

 

 

 

 

 

 

 

322

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

555

 

 

 

 

 

 

 

 

 

 

 

 

555

 

Dividends paid

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,500

)

 

 

 

 

 

 

 

 

(4,500

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24,019

)

 

 

 

 

 

 

 

 

(24,019

)

Balance at March 31, 2019

 

 

8,381,130

 

 

$

8

 

 

 

5,620,000

 

 

$

6

 

 

 

14,164,306

 

 

$

14

 

 

$

125,121

 

 

$

(147,322

)

 

 

(3,474,572

)

 

$

(18,771

)

 

$

(40,944

)

Issuance of common stock upon exercise

   of options

 

 

15,936

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

120

 

 

 

 

 

 

 

 

 

 

 

 

120

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

597

 

 

 

 

 

 

 

 

 

 

 

 

597

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,409

)

 

 

 

 

 

 

 

 

(16,409

)

Balance at June 30, 2019

 

 

8,397,066

 

 

$

8

 

 

 

5,620,000

 

 

$

6

 

 

 

14,164,306

 

 

$

14

 

 

$

125,838

 

 

$

(163,731

)

 

 

(3,474,572

)

 

$

(18,771

)

 

$

(56,636

)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

4


 

PROGENITY, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

Operating Activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(69,935

)

 

$

(40,428

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Non-cash revenue reserve

 

 

23,729

 

 

513

 

Depreciation and amortization

 

 

2,501

 

 

 

2,303

 

Stock-based compensation expense

 

 

5,081

 

 

 

1,152

 

Loss on extinguishment of convertible note

 

 

3,401

 

 

 

 

Amortization of debt discount

 

 

1,330

 

 

 

802

 

Inventory write-down

 

 

7

 

 

 

64

 

Loss on disposal of property and equipment

 

 

18

 

 

 

 

Change in fair value of derivative liability

 

 

126

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

7,808

 

 

 

(3,565

)

Inventory

 

 

685

 

 

 

(2,494

)

Income tax receivable

 

 

(14,961

)

 

 

5,795

 

Prepaid expenses and other current assets

 

 

674

 

 

 

(3,680

)

Other assets

 

 

 

 

 

(62

)

Accounts payables

 

 

380

 

 

 

3,011

 

Accrued expenses and other liabilities

 

 

(5,879

)

 

 

(805

)

Other long-term liabilities

 

 

632

 

 

 

(132

)

Net cash used in operating activities

 

 

(44,403

)

 

 

(37,526

)

Investing Activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,627

)

 

 

(1,753

)

Purchases of short-term investments

 

 

 

 

 

(11,214

)

Proceeds from sale of short-term investments

 

 

 

 

 

31,414

 

Proceeds from sale of equity method investment

 

 

 

 

 

50

 

Net cash (used in) provided by investing activities

 

 

(1,627

)

 

 

18,497

 

Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net

 

 

90,937

 

 

 

442

 

Proceeds from issuance of Series B Preferred Stock, net

 

 

21,307

 

 

 

 

Proceeds from issuance of convertible note, net

 

 

14,895

 

 

 

 

Dividends paid

 

 

 

 

 

(4,500

)

Principal payments on mortgages payable

 

 

(125

)

 

 

(114

)

Principal payments on capital lease obligations

 

 

(413

)

 

 

(599

)

Net cash provided by (used in) financing activities

 

 

126,601

 

 

 

(4,771

)

Net increase (decrease) in cash and cash equivalents

 

 

80,571

 

 

 

(23,800

)

Cash and cash equivalents at beginning of period

 

 

33,042

 

 

 

49,005

 

Cash and cash equivalents at end of period

 

$

113,613

 

 

$

25,205

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

5


 

PROGENITY, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Six Months Ended

June 30,

 

 

 

Six Months Ended

 

 

June 30, 2019

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

1,901

 

 

$

3,749

 

Cash paid for income taxes

 

 

54

 

 

 

6

 

 

 

 

 

 

 

 

 

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Conversion of convertible note

 

$

18,750

 

 

$

 

Issuance of preferred stock in settlement of interest payable

 

 

2,698

 

 

 

 

Equity offering costs incurred but not paid

 

 

2,133

 

 

 

 

Issuance of stock options in settlement of accrued bonuses

 

 

754

 

 

 

 

Purchases of property and equipment in accounts payable