Full Press Release Details
PRECIPIO DIAGNOSTICS, LLC
| Unaudited Condensed Financial Statements | 2 | |||
| Condensed Balance Sheets at March 31, 2017 (Unaudited) and December 31, 2016 | 2 | |||
| Condensed Statements of Operations for the three months ended March 31, 2017 and 2016 (Unaudited) | 3 | |||
| Condensed Statements of Cash Flows for the three months ended March 31, 2017 and 2016 (Unaudited) | 4 | |||
| Notes to Unaudited Condensed Financial Statements | 5 | |||
| Management s Discussion and Analysis of Financial Condition and Results of Operations | 22 |
PRECIPIO DIAGNOSTICS, LLC
CONDENSED BALANCE SHEETS
| March 31, | December 31, | |||||||
| 2017 | 2016 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 32,854 | $ | 51,573 | ||||
| Accounts receivable, net | 380,474 | 387,613 | ||||||
| Inventory | 105,775 | 100,222 | ||||||
| Prepaids and other current assets | 8,494 | 12,761 | ||||||
| Total current assets | 527,597 | 552,169 | ||||||
| PROPERTY AND EQUIPMENT, NET | 256,037 | 280,061 | ||||||
| SECURITY DEPOSIT | 10,000 | 10,000 | ||||||
| TOTAL ASSETS | $ | 793,634 | $ | 842,230 | ||||
| LIABILITIES AND MEMBERS DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | 1,252,990 | 1,083,550 | ||||||
| Accrued expenses | 926,385 | 699,600 | ||||||
| Current maturities of long-term debt, less discounts | 357,603 | 394,838 | ||||||
| Convertible bridge notes, less debt issuance costs | 795,000 | 695,000 | ||||||
| Current maturities of capital leases | 47,072 | 46,230 | ||||||
| Deferred revenue | 92,150 | 92,150 | ||||||
| Total current liabilities | 3,471,200 | 3,011,368 | ||||||
| LONG TERM LIABILITIES: | ||||||||
| Long-term debt, less current maturities and discounts | 4,389,199 | 4,127,256 | ||||||
| Capital leases, less current maturities | 150,988 | 163,077 | ||||||
| Total liabilities | 8,011,387 | 7,301,701 | ||||||
| MEMBERS DEFICIT | ||||||||
| Preferred Series A, 1,905,556 units authorized, 1,075,000 units in 2017 and 2016 issued and outstanding | 1,075,000 | 1,075,000 | ||||||
| Preferred Series B, 1,882,968 units authorized, 1,208,189 units in 2017 and 2016 issued and outstanding | 1,820,070 | 1,820,070 | ||||||
| Common units, 5,288,254 units authorized, 1,316,910 units in 2017 and 1,314,632 units in 2016 issued and outstanding | 52,700 | 52,176 | ||||||
| Warrants | 1,433,636 | 1,433,636 | ||||||
| Restricted units | 6,950 | 7,203 | ||||||
| Accumulated deficit | (11,606,109 | ) | (10,847,556 | ) | ||||
| Total members deficit | (7,217,753 | ) | (6,459,471 | ) | ||||
| TOTAL LIABILITIES AND MEMBERS DEFICIT | $ | 793,634 | $ | 842,230 |
See notes to unaudited condensed financial statements
PRECIPIO DIAGNOSTICS, LLC
CONDENSED STATEMENTS OF OPERATIONS
| Three Months Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| NET REVENUE | ||||||||
| Patient service revenue, net | $ | 303,343 | $ | 656,532 | ||||
| less provision for bad debts | (54,602 | ) | (118,176 | ) | ||||
| 248,741 | 538,356 | |||||||
| LESS: COST OF DIAGNOSTIC SERVICES | 182,282 | 237,880 | ||||||
| GROSS PROFIT | 66,459 | 300,476 | ||||||
| OPERATING EXPENSES | 662,761 | 527,807 | ||||||
| OPERATING LOSS | (596,302 | ) | (227,331 | ) | ||||
| OTHER INCOME (EXPENSE): | ||||||||
| Interest expense | (162,251 | ) | (81,716 | ) | ||||
| Other income | 1,500 | |||||||
| (162,251 | ) | (80,216 | ) | |||||
| NET LOSS | $ | (758,553 | ) | $ | (307,547 | ) | ||
| Preferred unit dividends | (432,716 | ) | ||||||
| Deemed dividends on exchange of preferred units | (1,421,738 | ) | ||||||
| NET LOSS AVAILABLE TO COMMON UNIT HOLDERS | $ | (758,553 | ) | $ | (2,162,001 | ) | ||
| BASIC AND DILUTED LOSS PER COMMON UNIT | $ | (0.58 | ) | $ | (1.74 | ) | ||
| BASIC AND DILUTED WEIGHTED AVERAGE SHARES OF COMMON UNITS OUTSTANDING | 1,316,246 | 1,242,754 |
See notes to unaudited condensed financial statements
PRECIPIO DIAGNOSTICS, LLC
CONDENSED STATEMENTS OF CASH FLOWS
| Three Months Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| CASH FLOWS USED IN OPERATING ACTIVITIES: | ||||||||
| Net Loss | $ | (758,553 | ) | $ | (307,547 | ) | ||
| Adjustment to reconcile net loss to cash used in operating activities: | ||||||||
| Depreciation and amortization | 24,024 | 28,050 | ||||||
| Amortization of deferred financing costs and debt discount | 5,962 | 9,191 | ||||||
| Unit based compensation expense | 271 | 4,267 | ||||||
| Provision for allowance of doubtful accounts | 54,602 | 118,176 | ||||||
| Capitalized PIK interest on convertible bridge notes | 78,470 | |||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (47,463 | ) | (432,883 | ) | ||||
| Inventory | (5,553 | ) | (4,589 | ) | ||||
| Prepaids and other current assets | 4,267 | 1,294 | ||||||
| Account payable | 169,440 | (30,413 | ) | |||||
| Accrued expenses | 226,785 | (4,520 | ) | |||||
| Deferred rent | (7,027 | ) | ||||||
| Net Cash Used in Operating Activities | (326,218 | ) | (547,531 | ) | ||||
| CASH FLOWS PROVIDED BY FINANCING ACTIVITIES: | ||||||||
| Proceeds from convertible bridge notes | 100,000 | 455,000 | ||||||
| Proceeds from long-term debt | 265,000 | |||||||
| Capital lease principal payments | (11,247 | ) | (8,865 | ) | ||||
| Payments on long-term debt | (46,254 | ) | (35,656 | ) | ||||
| Payments for deferred financing costs | (10,000 | ) | ||||||
| Net Cash Provided by Financing Activities | 307,499 | 400,479 | ||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | (18,719 | ) | (147,052 | ) | ||||
| CASH AND CASH EQUIVALENTS - BEGINNING | 51,573 | 234,688 | ||||||
| CASH AND CASH EQUIVALENTS - ENDING | $ | 32,854 | $ | 87,636 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Interest Paid | $ | 14,806 | $ | 9,532 | ||||
| SUPPLEMENTAL DISCLOSURE OF NON- CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Preferred unit dividend financed through exchange agreement | $ | $ | 432,716 | |||||
| Convertible bridge notes exchanged for long-term debt | $ | $ | 1,120,000 | |||||
| Series A and B Preferred exchanged for long-term debt | $ | $ | 1,715,000 |
See notes to unaudited condensed financial statements
PRECIPIO DIAGNOSTICS, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
NOTE 1 NATURE OF BUSINESS AND SIGNIFICANT
Precipio Diagnostics, LLC (the Company or Precipio ) is a Connecticut limited liability company formed in 2011. The Company is an
early-stage diagnostics company that operates a cancer diagnostic laboratory located in New Haven, Connecticut. The Company collaborates with the Yale School of Medicine ( Yale ) to provide cancer diagnostics that are delivered to the
community and improve patient care. The Company is party to an exclusive agreement for professional pathology services with Yale, which allows the Company to provide a superior level of cancer diagnostics. Specimens are shipped to the Company s
laboratory where they are processed and diagnosed by the academic experts at Yale, whereby the end product is a pathology report which guides its customers, oncologists, as to the nature of their patients disease and helps them determine how
best to care for their patient. In addition to the pathology services provided, a Yale designated physician also serves as the Company s medical director.
On June 29, 2017, the Company completed a reverse merger transaction with Transgenomic, Inc. (Transgenomic) becoming a wholly owned subsidiary of
Transgenomic. Due to the reverse merger, the Company became the surviving entity and the registrant. Further, in connection with the Merger, Transgenomic changed its name to Precipio, Inc. ( New Precipio ) (see Note 7 for further
description of the merger).
BASIS OF PRESENTATION
The accompanying condensed financial statements are presented in conformity with accounting principles generally accepted in the United States
The condensed balance sheet as of December 31, 2016 was derived from our audited balance sheet as of that date, but does not
include all of the information and footnotes required by US GAAP for complete financial statements. There has been no change in the balance sheet from December 31, 2016. The accompanying condensed financial statements as of and for the
three months ended March 31, 2017 and 2016 are unaudited and reflect all adjustments (consisting of only normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position and
operating results for the interim periods. These unaudited condensed financial statements and notes should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2016. The results of
operations for the interim periods presented are not necessarily indicative of the results for fiscal year 2017.
PRECIPIO DIAGNOSTICS, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
NOTE 1 NATURE OF BUSINESS
AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The condensed financial statements have been prepared using GAAP applicable for a going concern, which assume that the Company will
realize its assets and discharge its liabilities in the ordinary course of business. The Company has incurred substantial operating losses and has used cash in its operating activities for the past several years. For the three months ended
March 31, 2017 and 2016 the Company had negative working capital of $2.9 million and $2.5 million, respectively, due to the fact that its accounts payable and accrued expenses were double the amount of its current assets as of the
balance sheet date, along with the significant amount of debt the Company has coming due within the next twelve months. The Company s ability to continue as a going concern is dependent upon a combination of achieving its business plan,
including generating additional revenue, and raising additional financing to meet its debt obligations and paying liabilities arising from normal business operations when they come due.
In conjunction with the merger on June 29, 2017, Precipio, Inc. relisted its common stock with the National Association of Securities Dealers Automated
Quotations ( NASDAQ ), and raised an additional $1,200,000. See Note 7 for a further description of the merger.
New Precipio is currently in
discussions with certain investors to raise additional capital. There can be no assurance such capital is available at terms favorable or agreeable to management, if at all, or that the Company will successfully complete the proposed capital raise.
Since the outcome of these matters cannot be predicted with any certainty at this time, there is substantial doubt that the Company will be able to continue as a going concern.
The Company has entered into a payment deferral arrangement with Connecticut Innovations, Incorporated (Connecticut Innovations) as the Company was unable to
continue to repay the principal payments on the loan as they came due. The Company has secured a revision to its Connecticut Innovations debt repayment schedule effective July 14, 2016 that approves interest only payments through
October 1, 2017, interest and principal payments through August 1, 2018 and on the remainder of the outstanding loan due on October 1, 2018.
Further, the Company is in default on its Webster Bank ( Webster ) covenants due to the Company s cash balance falling below the required
minimum balance of a cash runway of three months, based on trailing six months average cash burn as stipulated in the agreement. Precipio and Webster, in a Default and Reservation of Rights letter dated January 29, 2016, agreed that while
Precipio remains in default, Webster will preserve their rights but take no action at this time against the Company and shall refrain from calling the loan. Further Webster Bank has considered to maintain its senior credit facility in a letter dated
January 4, 2017 subject to their re-approval process.
On June 29, 2017, after completing the merger and
raising an additional $1,200,000 in new capital, Precipio, Inc. paid in full its loan obligations with Connecticut Innovations the Department Economic Community Development and Webster. See Note 9 for further discussion on debt retirements.
PRECIPIO DIAGNOSTICS, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
NOTE 1 NATURE OF BUSINESS
AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
aforementioned circumstances, there remains substantial doubt about the Company s ability to continue as a going concern. There can be no assurance that the Company will be able to successfully achieve its initiatives summarized above in order
to continue as a going concern. The accompanying financial statements have been prepared assuming the Company will continue as a going concern and do not include any adjustments that might result should the Company be unable to continue as a going
concern as a result of the outcome of this uncertainty.
SIGNIFICANT ACCOUNTING
The preparation of unaudited condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, and the disclosures of contingent assets and liabilities, at the date of the financial statements, and the reported revenues and expenses during the reporting period.
The most significant estimates with regard to these financial statements relate to the allowance for doubtful accounts, assumptions used to value stock based
compensation, contractual allowances, warrant valuations and potential impairment of long-lived assets. Although management believes the estimates that have been used are reasonable, actual results could vary from the estimates that were used.
CONCENTRATIONS OF RISK
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts
receivable. The Company considers all highly liquid investments, with maturities of three months or less, when purchased, to be cash equivalents. The Company maintains its cash and cash equivalents in bank deposit accounts which, at times, may
exceed Federal Deposit Insurance Corporation (FDIC) insured limits of $250,000. The Company reduces its exposure to credit risk by maintaining such deposits with high-quality financial institutions. At times the Company s deposits can exceed
Service companies in the health care industry typically grant credit without collateral to patients. The majority of these patients are
insured under third-party insurance agreements. The services provided by the Company are routinely billed utilizing the Current Procedural Terminology (CPT) code set designed to communicate uniform information about medical services and procedures
among physicians, coders, patients, accreditation organizations, and payers for administrative, financial, and analytical purposes.
PRECIPIO DIAGNOSTICS, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
NOTE 1 NATURE OF BUSINESS
AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CPT codes are currently identified by the Centers for Medicare and Medicaid Services and third-party payors. The Company utilizes CPT codes for Pathology and
Laboratory Services contained within codes 80000-89398.
The Company operates in the healthcare industry which is subject to numerous laws and
regulations of federal, state and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government healthcare program participation requirements, reimbursement for
patient services, and Medicare and Medicaid fraud and abuse. Government activity has increased with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by healthcare providers.
Violations of these laws and regulations could result in expulsion from government healthcare programs together with the imposition of significant fines and penalties, as well as significant repayments for patient services previously billed.
Management believes that the Company is in compliance with fraud and abuse regulations, as well as other applicable government laws and regulations. While no material regulatory inquiries have been made, compliance with such laws and regulations can
be subject to future government review and interpretation as well as regulatory actions unknown or unasserted at this time.
PROPERTY AND EQUIPMENT
Depreciation expense was $24,024 and $28,050 for the three months ended March 31, 2017 and 2016, respectively. Depreciation expense during each period
includes depreciation related to equipment acquired under capital leases.
The Company primarily recognizes revenue for services rendered upon completion of the testing
process. Net patient service revenue is reported at the estimated net realizable amounts from patients, third-party payors and others for services rendered, including retroactive adjustment under reimbursement agreements with third-party payors.
Revenue under third-party payor agreements is subject to audit and retroactive adjustment. Provisions for third-party payor settlements are provided in the period the related services are rendered and adjusted in the future periods, as final
settlements are determined.
PRECIPIO DIAGNOSTICS, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016