I think shutting down the lab was a pure outsourcing decision to save money which is the type of decision you would hope Red Oak would help influence. I don't think it signals they're shutting the company down at all--just processing samples in a cheaper way. I don't think most new customers will focus on or care where specimens are being processed, and if they do Xytex seems to be a very longstanding, legitimate, accredited lab so not a bad story. If Red Oak can show lower expenses to a potential buyer, it makes the company more valuable and shareholders get better price.
I thought the below paragraph was the most interesting part of the 10-K because you can calculate that revenues from new business/processing fees was only very slightly down YOY from some combination of discounted pricing and/or fewer units processed. Given recent company history I'm somewhat surprised new business held up as well as it did which is probably because of their strategic relationship with at least one health insurance provider which is a steady source of new business and also because when existing customers have another baby they're very likely to use them again.
Their $930,000 increase in revenues YOY is exactly the same as the increase YOY of their birth tissue procurement business, so their mainline stem cell storage business generated exactly the same revenue YOY (with recurring slightly up and processing slightly down). Although they re-signed a birth tissue contract, it's not clear how viable that business is going forward or how it might be valued by a potential buyer. Seems pretty evident that this business line will be down this year and won't be a growth driver going forward as it was in 2015. Nonetheless, the company is stable and doesn't appear at risk of running short of cash.
Since Red Oak has hired an investment bank, I would expect to see a transaction announced in the coming weeks unless no one bids a price Red Oak finds acceptable. Since their cost is so low I think the possibility of a broken auction is low as even a modest valuation of the recurring revenues will generate a multiple of Red Oak's share cost in a little over a year.
There has been some suggestion on this board that Red Oak might try to tender for the rest of the shares. I think this is highly unlikely as it isn't their history and would invite litigation, valuation rights etc. I think the buyer will be a legit 3rd party sourced via the auction who at a minimum sees the value of the recurring revenue stream. I think the buyer will want 100% of the shares and will take the company private. Red Oak has every incentive to get the best price and the SHs must in any case vote to approve the transaction (and Red Oak's shares must vote along with the majority of the other shares). So no SH will get "screwed" and there's no lurking conflict for the company to be sold for less than 3rd party buyers actually think it's worth. Nonetheless, the longer someone has been a shareholder the more likely they'll still lose money on the sale as the share price has dropped so dramatically in recent years.
For the year ended December 31, 2015, the Company's total revenue increased to $5.26 million from $4.33 million over the same period of 2014, an increase of 21%. Revenues are generated primarily from three sources: new enrollment/processing fees; recurring storage fees (both from cord blood and cord tissue); and services related to the procurement of birth tissue for organizations utilized in the transplantation and/or research of therapeutic products. The increase in revenue is due to growth in recurring storage fees and fees from procurement of birth tissue related services. Recurring storage revenues increased approximately 4% to $2.61 million for the year ended December 31, 2015, versus $2.52 million for the prior comparative year ended December 31, 2014. Revenues from the procurement of birth tissue increased to $1.73 million for the year ended December 31, 2015 from $0.80 million from the year ended December 31, 2014, an increase of 116%. This growth is attributable to an increase in the demand of birth tissue from existing relationships for 2015 as compared to 2014.
