Precipio, Inc. — Filing identity and reporting period
Filing identity: The supplied 10-Q identifies the registrant as Transgenomic, Inc., not Precipio, Inc. Verify that this is the intended filing. It reports unaudited results for the quarter and six months ended June 30, 2016, and was signed August 12, 2016.
Transgenomic’s continuing business was an Omaha-based laboratory services operation focused on oncology and pharmacogenomics research. Its strategy included commercializing or licensing its Multiplexed ICE COLD-PCR (MX-ICP) mutation-detection technology. Genetic Assays and Platforms and Patient Testing activities were reported as discontinued operations; Patient Testing services had been suspended while the company evaluated alternatives.
Financial results and liquidity
Amounts below are in U.S. dollars; financial statement amounts are presented in thousands unless stated otherwise.
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Continuing-operations net sales | $505 | $442 | $741 | $1,192 |
| Gross profit (loss) | ($37), (7%) margin | ($23), (5%) margin | ($306), (41%) margin | $262, 22% margin |
| Operating loss, continuing operations | ($1,875) | ($2,399) | ($4,118) | ($4,369) |
| Net loss | ($997) | ($3,275) | ($4,261) | ($6,316) |
| Loss per common share | ($0.05) | ($0.30) | ($0.20) | ($0.65) |
- Q2 continuing-operations revenue rose 14% year over year, reflecting higher oncology and grant revenue; contract laboratory services were flat. First-half revenue fell 38%, which management attributed to fewer customers with active projects.
- First-half gross margin turned sharply negative because revenue was insufficient to cover fixed laboratory costs. SG&A and R&D fell year over year, but the company remained loss-making.
- Q2 discontinued-operations income was $1.182 million, including approximately $1.0 million of proceeds from selling Patient Testing assets. First-half discontinued-operations income was $9,000; it should not be confused with continuing-business profitability.
- Cash was $421,000 at June 30, versus $444,000 at December 31, 2015. Working capital was negative $15.916 million. Total assets were $3.094 million and total liabilities were $19.384 million; stockholders’ deficit was $16.290 million.
- Six-month operating cash use was $2.755 million, including $2.834 million used in continuing operations and $79,000 provided by discontinued operations. Investing activities provided $936,000, including $962,000 from discontinued operations; financing activities provided $1.796 million. Cash declined $23,000 overall.
Debt, financing, and material changes
- Debt was $7.814 million, comprising a $3.243 million revolving line, a $4.0 million term loan, and $571,000 of convertible notes. All was classified as current. The revolving line bore 6.50% interest and the term loan 9.1%; the stated loan maturity was November 1, 2017, and the convertible notes matured December 31, 2016.
- The June 6, 2016 ninth amendment waived specified defaults and removed minimum liquidity and revenue covenants. The company reported compliance as of June 30, but disclosed that it had not paid the required July interest payment by August 12 and had not received a waiver. The lenders could stop advances, accelerate repayment, or pursue collateral remedies.
- In January, the company raised approximately $2.2 million through preferred-stock units and warrants. It also established a $3.5 million at-the-market equity program in June; Q2 sales under it generated less than $100,000 net. The filing describes substantial potential dilution and possible cash-payment obligations associated with certain warrant exchange features.
- The company converted its former Series A and B preferred stock and accrued dividends into 6.78 million common shares in January. Common shares outstanding were 23.104 million at June 30 and 23.548 million at July 31.
- Discontinued operations generated $574,000 of Q2 sales versus $6.598 million a year earlier, and $1.677 million for the first half versus $12.361 million. The figures reflect divestitures and suspension of Patient Testing, materially changing the business and comparability of reported results.
Outlook, risks, contingencies, and unusual items
- Going concern: Management said substantial doubt existed about the company’s ability to continue as a going concern. It stated it did not believe available cash would cover operating requirements for at least the next 12 months. The plan depended on revenue growth, improved collections, asset sales and, if needed, additional financing; success and financing availability were uncertain.
- No quantified financial guidance was provided. Management described an operating plan aimed at improving results, collections, and monetization of underutilized assets, without assurance it would succeed.
- Business highlights included a liquid-biopsy breast cancer panel and an ASCO study reporting 97% concordance with mutations detected by standard tissue-biopsy PCR. The filing also noted post-quarter announcements of an LQTS license to LabCorp, an EGFR C797S test launch, and an ICEme kit distribution agreement with VWR; these announcements do not establish material revenue.
- Two lawsuits sought approximately $700,000 each: the University of Nebraska and Mount Sinai claims, for which liabilities were recorded. Fox Chase litigation remained for certain contract and unjust-enrichment claims; the company could not estimate a possible loss and recorded no amount. The filing also notes indemnification obligations to IDT in connection with the Fox Chase matter.
- Nasdaq compliance was at risk: the company had received notices concerning the $1 minimum bid price and minimum stockholders’ equity. Nasdaq granted an extension to October 17, 2016 for the equity requirement; the bid-price deficiency remained unresolved, with possible delisting risk.
- Other risks included continuing operating losses, customer and reimbursement variability, dependence on external financing, potential warrant and equity dilution, and litigation. Management reported disclosure controls effective at the reasonable-assurance level and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Confirm that a Transgenomic, Inc. 10-Q is the intended filing for the requested company, Precipio, Inc.
- Check subsequent filings for the July interest-payment default, lender waiver or enforcement, debt repayment or refinancing, and cash availability.
- Verify whether the company secured sufficient financing or asset-sale proceeds to meet near-term obligations and address the stated going-concern uncertainty.
- Review subsequent Nasdaq notices and the outcome of both the minimum bid-price and stockholders’ equity compliance processes.
- Track continuing laboratory revenue, project activity, gross margins, cash collections, and whether MX-ICP launches or commercial agreements produced recurring revenue.
- Monitor Patient Testing divestiture proceeds and remaining assets, and developments in the UNMC, Mount Sinai, and Fox Chase matters.
- Assess potential dilution and cash exposure from outstanding warrants, preferred securities, the ATM program, and warrant exchange provisions.