Filing summary
Entity and period: The supplied filing is Transgenomic, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2016—not a filing under the name Precipio, Inc. The company described its ongoing business as Omaha-based laboratory services and development of its MX-ICP mutation-detection technology. Genetic Assays and Platforms and Patient Testing were reported as discontinued operations.
Financial results and liquidity
| Metric | Q1 2016 | Q1 2015 or prior date |
|---|---|---|
| Continuing-operations sales | $236,000 | $750,000 |
| Gross profit (loss) | $(269,000); margin (114%) | $285,000; margin 38% |
| Operating loss, continuing operations | $(2.243) million | $(1.970) million |
| Net loss, including discontinued operations | $(3.264) million | $(3.041) million |
| Loss per common share | $(0.16) | $(0.36) |
| Operating cash used | $(1.924) million, including $612,000 from discontinued operations | $(3.513) million |
| Cash and cash equivalents | $222,000 at March 31, 2016 | $444,000 at December 31, 2015 |
| Working capital | $(15.160) million | $(13.699) million at December 31, 2015 |
| Total debt | $7.346 million, all classified current | $7.596 million at December 31, 2015 |
Continuing sales fell 69%, which management attributed to fewer customers with active contract-laboratory projects. Lower revenue left the laboratory unable to cover fixed direct costs and drove the gross margin negative. SG&A was $1.704 million (down from $1.804 million); R&D was $270,000 (down from $451,000). Interest expense was $169,000. A $321,000 noncash warrant revaluation gain partly offset expenses; the comparable quarter had a $145,000 revaluation loss.
Discontinued operations recorded sales of $1.103 million versus $5.763 million and a net loss of $1.173 million versus $723,000. Financing provided $1.728 million in the quarter, including approximately $1.8 million net proceeds from the January preferred-stock offering and $500,000 of borrowing, partly offset by $550,000 in note repayments. The filing reports $222,000 ending cash.
Material changes, outlook, and risks
- Restructuring and financing: In January, holders converted all Series A and B preferred shares and accrued dividends into 6,780,179 common shares. The company also raised approximately $2.2 million gross through Series A-1 preferred units and warrants. The transactions materially increased common shares outstanding and left substantial potential warrant dilution.
- Going concern and debt default: The company reported substantial doubt about its ability to continue as a going concern and said it did not believe available cash was sufficient for at least the next 12 months. It was not in compliance with all loan financial covenants at March 31; the $7.346 million debt was therefore classified current. Lenders had rights to stop advances, accelerate repayment, or enforce collateral. The company also reported a $500,000 overadvance.
- Management plan: Management expected improved operating results, better collections, and possible monetization of underutilized assets; additional financing might be needed. It provided no quantified revenue or earnings guidance and cautioned that execution and financing were uncertain.
- Discontinued business: Patient Testing services had been suspended in March while strategic alternatives were evaluated; management anticipated a divestiture during 2016. The Genetic Assays and Platforms divestiture had been completed in 2015.
- Legal and listing matters: The University of Nebraska had sued over $700,000 owed, which was accrued. Fox Chase Cancer Center filed a separate lawsuit in April 2016; potential loss was not estimable and no amount was accrued. Nasdaq had notified the company of deficiencies in minimum bid price and stockholders’ equity, with stated compliance deadlines of August 22, 2016 and a plan-submission deadline of June 6, 2016, respectively.
- Other risks: The filing highlights potential dilution, dependence on further capital, reimbursement and regulatory risks, and uncertainty around the commercial adoption of MX-ICP. Management stated disclosure controls were effective at the reasonable-assurance level.
Investor verification priorities
- Confirm the reporting entity: the supplied 10-Q names Transgenomic, Inc.; it does not identify Precipio, Inc. as the registrant.
- Check subsequent filings for liquidity, going-concern status, covenant waivers, lender actions, and repayment or refinancing of debt.
- Verify the outcome of Patient Testing’s proposed divestiture and whether asset-sale proceeds were realized.
- Track the UNMC and Fox Chase litigation, including any settlement, indemnification exposure, or change in estimated losses.
- Review Nasdaq compliance outcomes and the potential share dilution or cash obligations tied to preferred securities and warrants.
- Assess whether laboratory project volumes, collections, and MX-ICP partnerships improved enough to support management’s operating plan.