NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Six Months Ended June 30, 2017 and 2016
1. BUSINESS DESCRIPTION
Business Description
Precipio, Inc., and Subsidiary, (“we”, “us”, “our”, the “Company” or “Precipio”) is a cancer diagnostics company providing diagnostic products and services to the oncology market. We have built and continue to develop a platform designed to eradicate the problem of misdiagnosis by harnessing the intellect, expertise and technology developed within academic institutions and delivering quality diagnostic information to physicians and their patients worldwide. We operate a cancer diagnostic laboratory located in New Haven, Connecticut and have partnered with the Yale School of Medicine to capture the expertise, experience and technologies developed within academia so that we can provide a better standard of cancer diagnostics and solve the growing problem of cancer misdiagnosis. We also operate a research and development facility in Omaha, Nebraska which will focus on further development of ICE-COLD-PCR (“ICP”), the patented technology which was exclusively licensed by us from Dana-Farber Cancer Institute, Inc. (“Dana-Farber”) at Harvard University (“Harvard”). The research and development center will focus on the development of this technology, which we believe will enable us to commercialize other technologies developed by our current and future academic partners. Our platform connects patients, physicians and diagnostic experts residing within academic institutions. Launched in 2017, the platform facilitates the following relationships:
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Patients: patients may search for physicians in their area and consult directly with academic experts that are on the platform. Patients may also have access to new academic discoveries as they become commercially available.
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Physicians: physicians can connect with academic experts to seek consultations on behalf of their patients and may also provide consultations for patients in their area seeking medical expertise in that physician’s relevant specialty. Physicians will also have access to new diagnostic solutions to help improve diagnostic accuracy.
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Academic Experts: academic experts on the platform can make themselves available for patients or physicians seeking access to their expertise. Additionally, these experts have a platform available to commercialize their research discoveries.
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We intend to continue updating our platform to allow for patient-to-patient communications and allow individuals to share stories and provide support for one another, to allow physicians to consult with their peers to discuss and share challenges and solutions, and to allow academic experts to interact with others in academia on the platform to discuss their research and cross-collaborate.
ICP was developed at Harvard and is licensed exclusively by us from Dana-Farber. The technology enables the detection of genetic mutations in liquid biopsies, such as blood samples. The field of liquid biopsies is a rapidly growing market, aimed at solving the challenge of obtaining genetic information on disease progression and changes from sources other than a tumor biopsy.
Gene sequencing is performed on tissue biopsies taken surgically from the tumor site in order to identify potential therapies that will be more effective in treating the patient. There are several limitations to this process. First, surgical procedures have several limitations, including:
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Cost: surgical procedures are usually performed in a costly hospital environment. For example, according to a recent study the mean cost of lung biopsies is greater than $14,000; surgery also involves hospitalization and recovery time.
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Surgical access: various tumor sites are not always accessible (e.g. brain tumors), in which cases no biopsy is available for diagnosis.
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Risk: patient health may not permit undergoing an invasive surgery; therefore a biopsy cannot be obtained at all.
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Time: the process of scheduling and coordinating a surgical procedure often takes time, delaying the start of patient treatment.
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Second, there are several tumor-related limitations that provide a challenge to obtaining such genetic information from a tumor:
PRECIPIO, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Three and Six Months Ended June 30, 2017 and 2016
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Tumors are heterogeneous by nature: a tissue sample from one area of the tumor may not properly represent the tumor’s entire genetic composition; thus, the diagnostic results from a tumor may be incomplete and non-representative.
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Metastases: in order to accurately test a patient with metastatic disease, ideally an individual biopsy sample should be taken from each site (if those sites are even known). These biopsies are very difficult to obtain; therefore physicians often rely on biopsies taken from the primary tumor site.
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The advent of technologies enabling liquid biopsies as an alternative to tumor biopsy and analysis is based on the fact that tumors (both primary and metastatic) shed cells and fragments of DNA into the blood stream. These blood samples are called “liquid biopsies” that contain circulating tumor DNA, or ctDNA, which hold the same genetic information found in the tumor(s). That tumor DNA is the target of genetic analysis. However, since the quantity of tumor DNA is very small in proportion to the “normal” (or “healthy”) DNA within the blood stream, there is a need to identify and separate the tumor DNA from the normal DNA.
ICP is an enrichment technology that enables the laboratory to focus its analysis on the tumor DNA by enriching, and thereby “multiplying” the presence of, tumor DNA, while maintaining the normal DNA at its same level. Once the enrichment process has been completed, the laboratory genetic testing equipment is able to identify genetic abnormalities presented in the ctDNA, and an analysis can be conducted at a higher level of sensitivity, to enable the detection of such genetic abnormalities. The technology is encapsulated into a chemical that is provided in the form of a kit and sold to other laboratories who wish to conduct these tests in-house. The chemical within the kit is added to the specimen preparation process, enriching the sample for the tumor DNA so that the analysis will detect those genetic abnormalities.
Merger Transaction
On June 29, 2017, the Company (then known as “Transgenomic, Inc.”, or “Transgenomic”), completed a reverse merger (the “Merger”) with Precipio Diagnostics, LLC, a privately held Delaware limited liability company (“Precipio Diagnostics”) in accordance with the terms of the Agreement and Plan of Merger (the “Merger Agreement”), dated October 12, 2016, as amended on February 2, 2017 and June 29, 2017, by and among Transgenomic, Precipio Diagnostics and New Haven Labs Inc. (“Merger Sub”) a wholly-owned subsidiary of Transgenomic. Pursuant to the Merger Agreement, Merger Sub merged with and into Precipio Diagnostics, with Precipio Diagnostics surviving the Merger as a wholly-owned subsidiary of the combined company (See Note 3 - Reverse Merger). In connection with the Merger, the Company changed its name from Transgenomic, Inc. to Precipio, Inc., relisted its common stock under Precipio, Inc. on the National Association of Securities Dealers Automated Quotations (“NASDAQ”), and effected a 1-for-30 reverse stock split of its common stock. Upon the consummation of the Merger, the historical financial statements of Precipio Diagnostics become the Company's historical financial statements. Accordingly, the historical financial statements of Precipio Diagnostics are included in the comparative prior periods. As a result of the Merger, historical preferred stock, common stock, restricted units, warrants and additional paid-in capital, including share and per share amounts, have been retroactively adjusted to reflect the equity structure of the combined company, including the effect of the Merger exchange ratio. Pursuant to the Merger Agreement, each outstanding share of capital stock of Precipio Diagnostic was exchanged for 10.2502 pre-reverse stock split shares of Company Common Stock (the “Exchange Ratio”). See Note 3 - Reverse Merger for additional discussion of the Merger.
Going Concern
The condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America (“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. As of June 30, 2017, the Company had a net loss of
$4.4 million
and negative working capital of
$14.5 million
. 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.
Precipio is currently in discussions with certain investors to raise additional capital. There can be no assurance such capital is or will be 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.
PRECIPIO, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Three and Six Months Ended June 30, 2017 and 2016
Notwithstanding the 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation.
The accompanying condensed consolidated financial statements are presented in conformity with GAAP. We have evaluated events occurring subsequent to June 30, 2017 for potential recognition or disclosure in the condensed consolidated financial statements and concluded that, other than what is disclosed in Note 12 - Subsequent Events, there were no other subsequent events that required recognition or disclosure.
The condensed consolidated balance sheet as of
December 31, 2016
was derived from our audited balance sheet as of that date. There has been no change in the balance sheet from December 31, 2016. The accompanying condensed consolidated financial statements as of and for the
three and six
months ended
June 30, 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 consolidated financial statements and notes should be read in conjunction with the audited financial statements and notes thereto of Precipio Diagnostics for the year ended
December 31, 2016
contained in our current report on Form 8-K/A, filed with the Securities and Exchange Commission (the “SEC”) on July 31, 2017. The results of operations for the interim periods presented are not necessarily indicative of the results for fiscal year 2017.
Principles of Consolidation.
The condensed consolidated financial statements include the accounts of Precipio, Inc. and our wholly owned subsidiary. All inter-company balances and transactions have been eliminated in consolidation.
Use of Estimates.
The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. In addition, estimates and assumptions associated with the determination of the fair value of certain assets and related impairments require considerable judgment by management. Actual results could differ from the estimates and assumptions used in preparing these condensed consolidated financial statements.
Risks and Uncertainties.
Certain risks and uncertainties are inherent in our day-to-day operations and in the process of preparing our financial statements. The more significant of those risks are presented below and throughout the notes to the unaudited condensed consolidated financial statements.
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.
PRECIPIO, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Three and Six Months Ended June 30, 2017 and 2016
Fair Value.
Unless otherwise specified, book value approximates fair value. The common stock warrant liability is recorded at fair value. See Note 10 - Fair Value for additional information.
Cash and Cash Equivalents and Other Current Assets.
Cash and cash equivalents include cash and investments with original maturities at the date of acquisition of three months or less. Other current assets as of June 30, 2017 of
$0.2 million
includes prepaid assets of
$0.1 million
and other receivables of
$0.1 million
and consisted of primarily prepaid assets as of December 31, 2016.
Concentrations of Risk.
From time to time, we may maintain a cash position with financial institutions in amounts that exceed Federal Deposit Insurance Corporation insured limits. We have not experienced any losses on such accounts as of
June 30, 2017
.
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. 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.
Property and Equipment.
Depreciation expense related to property and equipment was less than
$0.1 million
for the six months ended
June 30, 2017
and
2016
. Depreciation expense during each period includes depreciation related to equipment acquired under capital leases.
Goodwill and Intangible Assets.
As a result of the Merger, the Company recorded goodwill and intangible assets as part of its allocation of the purchase consideration. See Note 3 - Reverse Merger for the amounts recorded.
Goodwill
Goodwill is tested for impairment annually. We perform this impairment analysis during the fourth quarter of each year or when a significant event occurs that may impact goodwill. Impairment occurs when the carrying value is determined to be not recoverable, thereby causing the carrying value of the goodwill to exceed its fair value. If impaired, the asset’s carrying value is reduced to its fair value. No events have transpired in the six months ended June 30, 2017 that would require an impairment analysis prior to our scheduled review.
Intangibles
We review our amortizable long-lived assets for impairment annually or whenever events indicate that the carrying amount of the asset (group) may not be recoverable. An impairment loss may be needed if the sum of the future undiscounted cash flows is less than the carrying amount of the asset (group). The amount of the loss would be determined by comparing the fair market value of the asset to the carrying amount of the asset (group). There were
no
impairment charges during the six months ended June 30, 2017.
In-process research and development (“IPR&D”) represents the fair value assigned to research and development assets that were not fully developed at the date of the Merger. Until the IPR&D projects are completed, the assets are accounted for as indefinite-lived intangible assets and subject to impairment testing. For the six months ended June 30, 2017, there was no impairment of IPR&D.
Stock-Based Compensation.
PRECIPIO, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Three and Six Months Ended June 30, 2017 and 2016
All stock-based awards to date have exercise prices equal to the market price of our common stock on the date of grant and have
ten
-year contractual terms. Unvested awards as of
June 30, 2017
had vesting periods of up to
three
years from the date of grant. None of the awards outstanding at
June 30, 2017
are subject to performance or market-based vesting conditions.
During the
six
months ended both
June 30, 2017
and 2016, we recorded compensation expense for all stock awards of less than
$0.1 million
within operating expense. As of
June 30, 2017
, the unrecognized compensation expense related to unvested stock awards was less than
$0.1 million
, which is expected to be recognized over a weighted-average period of
one
year.
Included in our stock awards outstanding as of June 30, 2017 were fully vested stock appreciation rights (“SARs”)
to purchase
2,777
shares of our common stock. The SARs were issued solely to a former executive officer and vested over
three
years from the date of grant.
Net Sales Recognition.
Revenue is realized and earned when all of the following criteria are met:
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Persuasive evidence of an arrangement exists;
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Delivery has occurred or services have been rendered;
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The seller’s price to the buyer is fixed or determinable; and
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Collectability is reasonably assured.
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In our New Haven, Connecticut laboratory, we primarily recognize 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 in which the related services are rendered and adjusted in the future periods, as final settlements are determined.
In our Omaha, Nebraska laboratory, we perform services on a project by project basis. When we receive payment in advance, we initially defer the revenue and recognize it when we deliver the service. These projects typically do not extend beyond one year.
At each of
June 30, 2017
and December 31,
2016
, deferred net sales included in the balance sheet in deferred revenue were
$0.2 million
and
$0.1 million
, respectively.
Taxes collected from customers and remitted to government agencies for specific net sales producing transactions are recorded net with no effect on the income statement.
Presentation of Insurance Claims and Related Insurance Recoveries.
The Company accounts for its insurance claims and related insurance recoveries at their gross values as standards for health care entities do not allow the Company to net insurance recoveries against the related claim liabilities. There were no insurance claims or insurance recoveries recorded during the three and six months ended June 30, 2017 and 2016.
Income Taxes.
Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities at each balance sheet date using tax rates expected to be in effect in the year the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent that it is more likely than not that they will not be realized.
Beneficial Conversion Features.
The intrinsic value of a beneficial conversion feature (“BCF”) inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible note payable and may not be settled in cash upon conversion, is treated as a discount to the convertible note payable. This discount is amortized over the period from the date of issuance to the first conversion date using the effective interest method. If the note payable is retired prior to the end of its contractual term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the BCF is measured by comparing the effective
PRECIPIO, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Three and Six Months Ended June 30, 2017 and 2016
conversion price, after considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value of the common shares at the commitment date to be received upon conversion.
Deemed dividends are also recorded for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded in the preferred shares. When the preferred shares are non-redeemable the BCF is fully amortized into additional paid-in capital and preferred discount. If the preferred shares are redeemable, the discount is amortized from the commitment date to the first conversion date.
Loss Per Share.
Basic loss per share is calculated based on the weighted-average number of common shares outstanding during each period. Diluted loss per share includes shares issuable upon exercise of outstanding stock options, warrants or conversion rights that have exercise or conversion prices below the market value of our common stock. Options, warrants and conversion rights pertaining to
2,545,463
and
2,771,149
shares of our common stock have been excluded from the computation of diluted loss per share at
June 30, 2017
and
2016
, respectively, because the effect is anti-dilutive due to the net loss.
Recent Accounting Pronouncements.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers. This guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to a customer. ASU No. 2014-09 will replace most existing revenue recognition guidance in generally accepted accounting principles in the U.S. when it becomes effective. In July 2015, the FASB decided to defer the effective date of this new accounting guidance by one year. As a result, ASU No. 2014-09 will be effective for us for all annual and interim reporting periods beginning after December 15, 2017 and early adoption would be permitted as of the original effective date. The new standard permits the use of either the retrospective or cumulative effect transition method. We do not expect to early adopt this guidance and we have not selected a transition method. We are currently evaluating the impact this guidance will have on our financial condition, results of operations and cash flows.
In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard amends the recognition of lease assets and lease liabilities by lessees for those leases currently classified as operating leases and amends disclosure requirements associated with leasing arrangements. The new standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition, and provides for certain practical expedients. Transition will require application of the new guidance at the beginning of the earliest comparative period presented. We are currently assessing the impact that the adoption of this ASU will have on our consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The new standard simplifies several aspects related to the accounting for share-based payment transactions, including the accounting for income taxes, statutory tax withholding requirements, forfeitures and classification on the statement of cash flows. This guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2016. The Company adopted ASU No. 2016-09 as of January 1, 2017. The adoption of this guidance does not have a material effect on the Company’s financial position and results of operations.
In August 2016, FASB issued ASU No. 2016-15
,
Classification of Certain Cash Receipts and Cash Payments.
ASU No. 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows by adding or clarifying guidance on eight specific cash flow issues. ASU No. 2016-15 is effective for fiscal years beginning after December 15, 2017, and for interim periods within that fiscal year. We do not believe ASU No. 2016-15 will have a material effect on our financial position and results of operations.
In January 2017, FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. ASU No. 2017-01 adds guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company does not believe ASU No. 2017-01 will have a material effect on its financial position and results of operations.
PRECIPIO, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Three and Six Months Ended June 30, 2017 and 2016
In January 2017, FASB issued ASU No. 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which removes Step 2 from the goodwill impairment test. It is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment test performed with a measurement date after January 1, 2017. The Company has adopted this standard and there was no impact on its consolidated financial statements because a goodwill impairment has not occurred after January 1, 2017.
In July 2017, FASB issued ASU No. 2017-11, Earning Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815), which was issued in two parts, Part I, Accounting for Certain Financial Instruments with Down Round Features and Part II, Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Part I of ASC No. 2017-11 addresses the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. The amendments in Part II of ASU 2017-11 recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the codification, to a scope exception. Part II amendments do not have an accounting effect. The ASU 2017-11 is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The Company has early adopted this standard as of January 1, 2017 with the only impact being that the warrants with down round provisions entered into in June 2017 were treated as equity classification. (See Note 5 - Convertible Bridge Notes).
3. REVERSE MERGER
On June 29, 2017 (the “Closing Date”), the Company completed the Merger with Precipio Diagnostics, in accordance with the terms of the Merger Agreement. Upon the consummation of the Merger, the historical financial statements of Precipio Diagnostics become the Company's historical financial statements. Accordingly, the historical financial statements of Precipio Diagnostics are included in the comparative prior periods.
On the Closing Date, the outstanding common and preferred units of Precipio Diagnostics and certain debt of Precipio Diagnostics were converted into (i)
5,352,847
shares of Precipio common stock, together with cash in lieu of fractional units, and (ii)
802,920
shares of Precipio preferred stock with an aggregate face amount equal to
$3 million
.
In connection with the Merger, on the Closing Date, Precipio also issued promissory notes and shares of Precipio preferred and common stock in a number of transactions, whereby:
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Holders of certain secured indebtedness of Transgenomic received in exchange for such indebtedness
802,925
shares of Precipio preferred stock in an amount equal to
$3.0 million
stated value, and
352,630
shares of Precipio common stock;
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Holders of Transgenomic preferred stock converted it into
7,155
shares of Precipio common stock; and
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Precipio issued
107,056
shares of Precipio preferred stock to certain investors in exchange for
$400,000
in a private placement. Precipio also completed the sale of an aggregate of
$800,000
of promissory notes pursuant to a securities purchase agreement.
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Purchase Consideration
The preliminary estimated purchase consideration based on the value of the equity of Transgenomic, the accounting acquiree, is as follows:
PRECIPIO, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Three and Six Months Ended June 30, 2017 and 2016
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(dollars in thousands)
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Legacy Transgenomic common stock
|
$
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6,088
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Fair value of preferred stock converted to common stock
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49
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Fair value of debt converted to common stock
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2,398
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Fair value of debt converted to preferred stock
|
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9,796
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Fair value of existing bridge notes
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1,275
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Fair value of warrants
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1,996
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Purchase consideration
|
$
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21,602
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In estimating the preliminary purchase consideration above, Transgenomic used its closing stock price of
$6.80
as of the Closing Date. Transgenomic had
895,334
common shares outstanding prior to the Merger. In connection with the Merger, Transgenomic preferred stock converted into
7,155
shares of Precipio common stock and certain of Transgenomic debt and accrued interest converted into
352,630
shares of Precipio common stock and
802,925
shares of Precipio preferred stock, face value
$3.0 million
with an
8%
annual dividend. At the Closing Date, the preferred stock had a fair value of
$12.20
per share.
Allocation of Purchase Consideration
The following table sets forth an allocation of the purchase consideration to the identifiable tangible and intangible assets of Transgenomic, the accounting acquiree, based on fair values as of the Closing Date with the excess recorded as goodwill:
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(dollars in thousands)
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Current and other assets
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$
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419
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Property and equipment
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29
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Goodwill
|
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13,832
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Other intangible assets
(1)
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21,100
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Total assets
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35,380
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Current liabilities
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13,604
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Other liabilities
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174
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Total liabilities
|
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13,778
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Net assets acquired
|
$
|
21,602
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(1)
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Other intangible assets consist of:
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(dollars in thousands)
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Acquired technology
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$
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18,990
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Customer relationships
|
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250
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|
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Non-compete agreements
|
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30
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Trademark and trade name
|
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40
|
|
|
Backlog
|
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200
|
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|
In-process research and development
|
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1,590
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Total intangibles
|
$
|
21,100
|
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We determined the estimated fair value of the acquired technology but using the multi-period excess earnings method of the income approach. The estimated fair value of the remaining identifiable intangible assets acquired were determined primarily by using the income approach.
Unaudited pro forma information
The operating results of Transgenomic for the period after the Closing Date to June 30, 2017 have been included in the Company's condensed consolidated financial statements as of and for the three and six months ended June 30, 2017.
PRECIPIO, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Three and Six Months Ended June 30, 2017 and 2016
The following unaudited pro forma information presents the Company's financial results as if the acquisition of Transgenomic had occurred on January 1, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands, except per share amounts
|
|
|
|
|
|
Six months ended June 30,
|
|
|
2017
|
|
2016
|
|
Net sales
|
$
|
1,472
|
|
|
$
|
1,783
|
|
|
Net loss available to common stockholders
|
(13,864
|
)
|
|
(13,266
|
)
|
|
Loss per common share
|
$
|
(2.16
|
)
|
|
$
|
(2.07
|
)
|
|
|
|
|
|
PRECIPIO, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Three and Six Months Ended June 30, 2017 and 2016
4. LONG-TERM DEBT
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in Thousands
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
Senior Notes
|
|
$
|
—
|
|
|
$
|
3,270
|
|
|
Senior Note debt issuance costs
|
|
—
|
|
|
(9
|
)
|
|
Junior Notes
|
|
—
|
|
|
584
|
|
|
Connecticut Innovations - line of credit
|
|
162
|
|
|
162
|
|
|
Department of Economic and Community Development (DECD)
|
|
226
|
|
|
243
|
|
|
DECD debt issuance costs
|
|
—
|
|
|
(30
|
)
|
|
Webster Bank
|
|
—
|
|
|
328
|
|
|
Webster Bank debt discounts and issuance costs
|
|
—
|
|
|
(26
|
)
|
|
Convertible promissory notes
|
|
125
|
|
|
—
|
|
|
Total long-term debt
|
|
513
|
|
|
4,522
|
|
|
Current portion of long-term debt
|
|
(513
|
)
|
|
(395
|
)
|
|
Long-term debt, net of current maturities
|
|
$
|
—
|
|
|
$
|
4,127
|
|
Senior and Junior Notes
During 2016, the Company raised
$525,000
from members through the issuance of senior notes which accrue interest at a rate of
12%
and are payable at the sooner of the closing of a qualified public offering, as outlined in the note agreement, or five years from date of issuance.
Also during 2016, the Company restructured equity through a redemption and exchange agreement by exchanging Member Equity comprised of Series A and Series B Convertible Preferred Units in the amount of
$2,147,716
(members’ initial investment of $
1,715,000
, plus declared dividends on these preferred units of
$432,716
), and Convertible Bridge Notes of
$1,120,000
, plus accrued interest of
$61,073
for new senior notes of
$2,744,968
(“Senior Notes”) and new junior notes of
$583,821
(“Junior Notes”). The Senior and Junior Notes accrue interest at a rate of
12%
and
15%
, respectively, and have maturity dates ranging from March 2021 to September 2021, or earlier based on certain qualifying events as outlined in the note agreements.
During the six months ended June 30, 2017, the Company raised
$315,000
from members through the issuance of Senior Notes at a rate of
12%
interest that are payable at the sooner of the closing of a qualified public offering, as outlined in the note agreement, or five years from date of issuance.
On the Closing Date of the Merger, the outstanding balance of
$3,584,968
in Senior Notes and
$583,821
in Junior Notes, plus accrued interest of
$602,373
, were converted into
802,920
shares of Precipio preferred stock and
1,414,700
shares of Precipio common stock. There were
no
Senior or Junior Notes outstanding as June 30, 2017.
As of December 31, 2016, the outstanding balance of Senior and Junior Notes was
$3,269,968
and
$583,821
, respectively, with accrued interest included within the accrued expenses on the accompanying condensed consolidated balance sheet of
$279,740
and
$71,258
, respectively.
Connecticut Innovations, Incorporated
The Company entered into a line of credit on April 1, 2012 with Connecticut Innovations, Incorporated (Connecticut Innovations), an entity affiliated with a director of the Company, for up to
$500,000
with interest paid monthly at
8%
, due on
September 1, 2018
. Principal and interest payments began February 1, 2013 and ranged from
$7,436
to
$12,206
until September 2016, when the Company entered into a forbearance agreement to 1) defer monthly principal payments until October 2017 and 2) make interest-only payments totaling
$1,041
per month through October 2017. Pursuant to the forbearance agreement, the
PRECIPIO, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Three and Six Months Ended June 30, 2017 and 2016
Company was also restricted from any additional borrowings under the line of credit. The line was secured by substantially all of the Company’s assets.
In connection with the Merger, the Company was to pay in full its loan obligations with Connecticut Innovations. The outstanding balance was
$162,066
at both June 30, 2017 and December 31, 2016. The outstanding principal and accrued interest balance was paid in full in July 2017.
Department of Economic and Community Development.
The Company entered into a
10
-year term loan with the Department of Economic and Community Development (“DECD”) on May 1, 2013 for
$300,000
, with interest paid monthly at
3%
, due on
April 23, 2023
. The loan was secured by substantially all of the Company’s assets but was subordinate to the term loan with Webster Bank and the Connecticut Innovations line of credit. In connection with the Merger, the Company was to pay in full its loan obligations with DECD. The outstanding balance was
$225,714
and
$243,287
as of June 30, 2017 and December 31, 2016, respectively. The outstanding principal and accrued interest balance was paid in full in July 2017.
Webster Bank.
The Company entered into a
3.5
-year term loan with Webster Bank on December 1, 2014 for
$500,000
, with interest paid monthly at the one month LIBOR rate (
1.16%
at June 30, 2017) plus 500 basis points, due on
May 31, 2018
. The line was secured by substantially all of the Company’s assets and had first priority over all other outstanding debt.
The term loan with Webster Bank was subject to financial covenants relating to maintaining adequate cash runway, as defined in the term loan agreement. As of December 31, 2016 the Company was not in compliance with these covenants and, as such, the Webster Bank debt has all been presented as current in the accompanying condensed consolidated financial statements.
On June 29, 2017, the closing date of the Merger, the Company paid in full its loan obligations (including principal and interest) with Webster Bank. The outstanding balance was
zero
and
$328,000
as of June 30, 2017 and December 31, 2016, respectively.
During the three and six months ended June 30, 2017, the Company incurred a loss on extinguishment of debt in the approximate amount of
$53,000
, related to the extinguishment of the Connecticut Innovations, DECD and Webster Bank loans.
Convertible Promissory Notes.
The Company, as part of the merger, assumed an Unsecured Convertible Promissory Note (the “Note”) with an accredited investor (the “Investor”) in the aggregate principal amount of
$125,000
and interest accrues at a rate of
6%
per year. The Note provided that two-thirds of the outstanding principal amount of the Note was due upon the earlier to occur of the close of the Merger or
June 17, 2017
(such applicable date, the “Maturity Date”). The remaining one-third of the principal amount outstanding on the Note was to be paid on the six month anniversary of the Maturity Date.
On the Maturity Date, the then outstanding aggregate amount owed on the Note of $
143,041
(
$125,000
in principal amount and
$18,041
of accrued interest which is included within accrued expenses on the accompanying consolidated condensed balance sheet) became due. Pursuant to the terms of the Note, the Company’s failure to pay any principal or interest within 10 days of the date such payment is due will constitute an event of default (the “Prospective Event of Default”). On June 21, 2017, the Investor agreed to waive the Prospective Event of Default and agreed to further extend the Maturity Date of the Note pursuant to a side letter to the Note (the “Side Letter”). The Side Letter provides that two-thirds of the outstanding principal amount of the Note must be paid upon the earlier to occur of (1) the closing of a public offering by the Company of either common stock, convertible preferred stock or convertible preferred notes or (2) August 16, 2017 (such applicable date, the “Deferred Maturity Date”). As of August 21, 2017, the Company has not made any payment related to amounts that were due on August 16, 2017. Pursuant to the terms of the Notes, the Company’s failure to pay any principal or interest within 10 days of the date such payment is due will constitute an event of default. The Company is attempting to negotiate a resolution with the Investor so that the Company will not default on such payment; however, there is no guarantee that the Company will be able to work out a satisfactory resolution. The remaining one-third of the principal amount outstanding on the Note must be paid on the six month anniversary of the Deferred Maturity Date (the “Extended Maturity Date”). All accrued and unpaid interest on the outstanding principal amount of the Note will be due and immediately payable on the Extended Maturity Date, unless the Note is converted in which case such interest will be payable in shares of the Company’s common stock as part of the conversion.
5. CONVERTIBLE BRIDGE NOTES.
PRECIPIO, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Three and Six Months Ended June 30, 2017 and 2016
Convertible Bridge Notes.
During the year ended December 31, 2016, the Company had outstanding
$695,000
of unsecured convertible bridge notes. The notes accrued interest at a rate of
14%
and were payable on the extended maturity date of December 31, 2016. During January 2017, the holders of the convertible bridge notes agreed to waive the maturity date of December 31, 2016 and change it to payable on demand and accrue interest until paid.
The convertible bridge notes had conversion terms of (i) convertible into Series C Preferred Units of the Company (at a
30%
discount) upon a Qualified Series C Financing (as defined in the note agreement), (ii) at the option of the holders of a majority of the then-outstanding principal amount of the notes, convertible into Series C Preferred Units of the Company (at a
30%
discount) upon any other Series C Financing, or (iii) if no such Qualified Series C Financing occurs, or no such optional conversion takes place by the maturity date (as hereinafter defined), the convertible notes will be fully repaid by Company or the notes and accrued and unpaid interest shall convert into Preferred Series B Units (at a
30%
discount) of the Preferred Series B conversion Price as defined in the operating agreement provided that notice is given to the Company at least one day prior to maturity. In the event a Deemed Liquidity Event (merger, sale, IPO, or transaction with exchange of 50% or more of voting power) the holders of the notes at their sole discretion can (a) require the Company to pay an amount equal to two times the principal and accrued and unpaid interest or (b) convert all unpaid principal and interest at a rate of
70%
of the applicable security. These notes were subordinated to Connecticut Innovations, DECD and Webster Bank.
In connection with the Merger, on the Closing Date, convertible bridge notes of
$695,000
, plus
$192,000
of accrued interest, were converted into
155,639
shares of Precipio common stock.
2017 New Bridge Notes I.
Prior to the Merger, the Company (then Transgenomic) completed the sale of an aggregate of
$1.2 million
of non-convertible promissory notes (the “2017 Bridge Notes”) in a bridge financing pursuant to a securities purchase agreement (the “Purchase Agreement”), for which $561,500 was then given to Precipio Diagnostics through the issuance of a promissory note and is eliminated in consolidation. The financing was intended to help facilitate the completion of the Merger. The 2017 Bridge Notes had an annual interest rate of
4%
and a
90
-day maturity. The 2017 Bridge Notes may be repaid by the Company at any time in cash upon payment of a
20%
premium. In connection with the issuance of the 2017 Bridge Notes, the Company issued warrants (the “2017 Bridge Warrants”) to acquire
40,000
shares of the Company's common stock at an exercise price of
$15.00
per share, subject to anti-dilution protection. The Purchase Agreement provides certain piggyback registration rights for the holders of the 2017 Bridge Warrants for a period of six months after the closing of the bridge financing. Aegis Capital Corp. acted as placement agent for the bridge financing and received a placement agent fee of
$84,000
and warrants (the “Aegis Warrants”) to acquire
5,600
shares of the Company's common stock at an exercise price of
$15.00
per share. The Aegis Warrants are identical to the 2017 Bridge Warrants except that the Aegis Warrants do not have anti-dilution protection.
At the time of the Merger, the 2017 Bridge Notes were extinguished and replaced with convertible promissory notes (the “2017 New Bridge Notes I”) with an original principal amount of
$1.2 million
in the aggregate pursuant to an Exchange Agreement (the “Exchange Agreement”) entered into on the Closing Date. The 2017 New Bridge Notes I have an annual interest rate of
8.0%
and are due and payable upon the earlier to occur of (i) October 1, 2017 or (ii) the closing of a Qualified Offering (as defined in the 2017 New Bridge Notes I). The 2017 New Bridge Notes I are convertible into shares of our common stock at an initial conversion price of
$3.736329
per share, subject to adjustment, and may be convertible into shares of our preferred stock at the holder’s option if the Company does not complete a Qualified Offering (as defined in the 2017 New Bridge Notes I) by October 1, 2017. The Company may redeem the 2017 New Bridge Notes I at any time in cash upon payment of a
20%
premium, or
$240,000
. As the convertible promissory notes were convertible into the Company's common stock at a conversion rate lower than the fair market value of the common stock at the time of issuance, the Company recorded
$989,000
as a beneficial conversion feature, which was recorded as a debt discount in the balance sheet. The discount will be amortized using the effective interest method through the first conversion date of the 2017 New Bridge Notes I.
Pursuant to the Exchange Agreement, the 2017 Bridge Warrants were canceled and replaced with new warrants to acquire
45,600
shares of our common stock (the “2017 New Bridge Warrants”). The initial exercise price of the 2017 New Bridge Warrants is
$7.50
(subject to adjustments). If the Company completes a Qualified Offering (as defined in the 2017 New Bridge warrants), the exercise price of the 2017 New Bridge Warrants will become the lower of (i)
$7.50
, or (ii)
110%
of the per share offering price in the Qualified Offering, but in no event lower than
$1.50
per share, which has been considered a down round provision. At issuance, the 2017 New Bridge Warrants had a fair value of
$211,000
and were recorded as a debt discount to the related 2017 New Bridge Notes I, with the corresponding entry to additional paid in capital as the warrants were considered classified as equity in accordance with GAAP. As discussed in Note 2 of the accompanying unaudited condensed consolidated financial statements,
PRECIPIO, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Three and Six Months Ended June 30, 2017 and 2016
the Company early adopted ASU 2017-11, which allowed the Company to treat the warrants as equity classified, despite the down round provision.
2017 New Bridge Note II.
In connection with the Merger, on the Closing Date and pursuant to a Securities Purchase Agreement (the “Bridge Purchase Agreement”), the Company completed the sale of an aggregate of
$800,000
of a convertible promissory note (the “2017 New Bridge Note II”). The Company received net proceeds of
$721,000
from the sale of the 2017 New Bridge Note II, which will be used for working capital purposes. The 2017 New Bridge Note II has an annual interest rate of
8.0%
and are due and payable upon the earlier to occur of (i) October 1, 2017 or (ii) the closing of a Qualified Offering (as defined in the 2017 New Bridge Note II). The 2017 New Bridge Note II is convertible into shares of our common stock at an initial conversion price of
$3.736329
per share, subject to adjustment, and may be convertible into shares of our preferred stock at the holder’s option if the Company does not complete a Qualified Offering (as defined in the 2017 New Bridge Note II) by October 1, 2017. The Company may redeem the 2017 New Bridge Note II at any time in cash upon payment of a
20%
premium, or
$160,000
.
As the 2017 New Bridge Note II was convertible into the Company's common stock at a conversion rate lower than the fair market value of the common stock at the time of issuance, the Company recorded
$656,000
as a beneficial conversion feature, which was recorded as a debt discount in the balance sheet. The discount will be amortized using the effective interest method through the first conversion date of the 2017 New Bridge Note II.
In connection with the bridge financing and the assumption of certain obligations by an entity controlled by Mark Rimer (a director of the Company), the Company issued to that entity warrants (the “Side Warrants”) to purchase an aggregate of
91,429
shares of the Company's common stock at an exercise price of
$7.00
per share (subject to adjustment), with a fair value of
$487,000
at the date of issuance. The Side Warrants have a term of
5 years
and are exercisable as to
22,857
shares of the Company's common stock upon grant and as to
68,572
shares of the Company's common stock upon the entity’s performance of the assumed obligations. The Company has recorded merger advisory expense of
$414,000
related to the Side Warrants during the three and six months ended June 30, 2017. The remaining fair value of
$73,000
will be recorded as expense at the time the performance obligations are met.
In addition, upon the Company consummating one or more rounds of equity financing following July 1, 2017, with aggregate gross proceeds of at least
$7 million
, the Company will use a portion of the proceeds from such financing to repay the principal amount of the 2017 New Bridge Notes, together with any premium and interest.
As of June 30, 2017, the outstanding convertible notes balance was
$2.0 million
, net of debt discounts of
$1.7 million
and debt issuance cost of
$0.1 million
. Accrued interest of approximately
$10,000
is included within accrued expenses on the accompanying condensed consolidated balance sheet.
6. ACCRUED EXPENSES.
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
Accrued expenses
|
|
$
|
2,560
|
|
|
$
|
50
|
|
|
Accrued compensation
|
|
791
|
|
|
155
|
|
|
Accrued interest
|
|
170
|
|
|
495
|
|
|
|
|
$
|
3,521
|
|
|
$
|
700
|
|
7. CONTINGENCIES
The Company is involved in legal proceedings related to matters, which are incidental to its business. The Company has also assumed a number of claims as a result of the Merger. See below for a discussion on these matters.
The healthcare industry 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
PRECIPIO, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Three and Six Months Ended June 30, 2017 and 2016
participation requirement, 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.
The outcome of legal proceedings and claims brought against us are subject to significant uncertainty. Therefore, although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against us in the same reporting period for amounts in excess of management’s expectations, our financial statements for such reporting period could be materially adversely affected. In general, the resolution of a legal matter could prevent us from offering our services or products to others, could be material to our financial condition or cash flows, or both, or could otherwise adversely affect our operating results.
Claims assumed in the Merger
The Company assumed a number of claims as a result of the Merger. In addition to the claims described below, we are delinquent on the payment of outstanding accounts payable certain of our vendors and suppliers who have taken or have threatened to take legal action to collect such outstanding amounts.
On February 25, 2016, the Board of Regents of the University of Nebraska (“UNMC”) filed a lawsuit against us in the District Court of Douglas County, Nebraska, for breach of contract and seeking recovery of
$0.7 million
owed by us to UNMC. A
$0.4 million
liability has been recorded and is reflected in accrued expenses at March 31, 2017 and December 31, 2016. We and UNMC entered into a settlement agreement dated February 6, 2017, which included, among other things, a mutual general release of claims, and our agreement to pay $0.4 million to UNMC in installments over a period of time. As of March 15, 2017, the initial payment due to UNMC under the settlement agreement is delinquent. We and UNMC are currently in discussions to extend the date of the initial payment due to UNMC. A
$0.4 million
liability has been recorded and is reflected in accrued expenses at June 30, 2017.
On April 13, 2016, Fox Chase Cancer Center (“Fox Chase”) filed a lawsuit against Transgenomic in the Court of Common Pleas of Philadelphia County, First Judicial District of Pennsylvania Civil Trial Division (the “Court of Common Pleas”), alleging, among other things, breach of contract, tortious interference with present and prospective contractual relations, unjust enrichment, fraudulent conversion and conspiracy and seeking punitive damages in addition to damages and other relief. This lawsuit relates to a license agreement Transgenomic entered into with Fox Chase in August 2000, as amended (the “License Agreement”), as well as the assignment of certain of Transgenomic's rights under the License Agreement to Integrated DNA Technologies, Inc. (“IDT”) pursuant to the Surveyor Kit Patent, Technology and Inventory Purchase Agreement Transgenomic entered into with IDT effective as of July 1, 2014 (the “IDT Agreement”). Pursuant to the terms of the IDT Agreement, Transgenomic agreed to indemnify IDT with respect to certain of the claims asserted in the Fox Chase proceeding. On July 8, 2016, the Court of Common Pleas sustained Transgenomic's preliminary objections to several of Fox Chase’s claims and dismissed the claims for tortious interference, fraudulent conversion, conspiracy, punitive damages and attorney’s fees. Accordingly, the case has been narrowed so that only certain contract claims and an unjust enrichment claim remained pending against Transgenomic.
During June 2017, prior to the Merger, Transgenomic entered into a settlement agreement with Fox Chase (the “Agreement”) which will resolve all outstanding claims in the litigation brought in April 2016 by Fox Chase against Transgenomic in the Court of Common Pleas of Philadelphia County (the “Action”). The case will remain pending with the Court until all settlement payments to Fox Chase have been made. Under the Agreement the Company will make three (
3
) payments to Fox Chase totaling
$175,000
. The last payment is to be made on or before September 30, 2017, and once received Fox Chase is obligated to cause the Action to be formally dismissed with prejudice. Also, on July 13, 2017 the Company entered into an agreement with its co-Defendant, IDT, regarding the Company’s indemnity obligations to IDT for legal fees and expenses incurred in the Action pursuant to the terms of the IDT Agreement. The IDT Agreement provides for monthly payments of
$27,800
from the Company to IDT, in the total amount of
$139,000
, commencing on August 15, 2017 and concluding on December 15, 2017. A
$0.3 million
liability has been recorded and is reflected in accrued expenses at June 30, 2017.
PRECIPIO, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Three and Six Months Ended June 30, 2017 and 2016
On June 23, 2016, the Icahn School of Medicine at Mount Sinai (“Mount Sinai”) filed a lawsuit against us in the Supreme Court of the State of New York, County of New York, alleging, among other things, breach of contract and, alternatively, unjust enrichment and quantum merit, and seeking recovery of
$0.7 million
owed by us to Mount Sinai for services rendered. We and Mount Sinai entered into a settlement agreement dated October 27, 2016, which included, among other things, a mutual general release of claims, and our agreement to pay approximately
$0.7 million
to Mount Sinai in installments over a period of time. A
$0.7 million
liability has been recorded and is reflected in accrued expenses at June 30, 2017. Effective as of February 1, 2017, we and Mount Sinai agreed to amend the terms of our settlement agreement to extend the date of the initial payment due to Mount Sinai.
On December 19, 2016, Todd Smith (“Smith”) filed a lawsuit against us in the District Court of Douglas County Nebraska, alleging breach of contract and seeking recovery of
$2.2 million
owed by us to Smith for costs and damages arising from a breach of our obligations pursuant to a lease agreement between the parties. On April 7, 2017, we entered into a settlement agreement with Smith related to the early termination of our lease for our Omaha, Nebraska facility. The agreement included, among other things, a mutual general release of claims, and our agreement to pay approximately
$0.6 million
to Smith in installments over a period of time. A
$0.6 million
liability has been recorded and is reflected in accrued expenses at June 30, 2017.
On February 21, 2017, XIFIN, Inc. (“XIFIN”) filed a lawsuit against us in the District Court for the Southern District of California alleging breach of written contract and seeking recovery of approximately
$0.27 million
owed by us to XIFIN for damages arising from a breach of our obligations pursuant to a Systems Services Agreement between us and XIFIN, dated as of February 22, 2013, as amended and restated on September 1, 2014. On April 5, 2017, the court clerk entered default against us. On May 5, 2017, XIFIN filed an application for entry of default judgment against us. A
$0.3 million
liability has been recorded and is reflected in accrued expenses at June 30, 2017.
We and Science Park Development Corporation (“SPDC”) entered into that certain Lease dated as of December 31, 2011, as modified by the First Amendment to Lease dated as of June 18, 2013, as further modified by a letter agreement dated as of February 2, 2015, as modified by the Second Amendment to Lease dated as of June 26, 2015 (the “ SPDC Lease”). In November 2016, SPDC alleged that we defaulted on our obligations under the SPDC Lease. Specifically, SPDC alleges that we failed to pay approximately
$0.4 million
in rental payments due under the SPDC Lease and that we vacated a portion of the leased premises in violation of the terms of the SPDC Lease. We and SPDC entered into a settlement agreement dated March 6, 2017, which included, among other things, a mutual general release of claims, and our agreement to pay approximately
$0.4 million
to SPDC in installments over a period of time. This liability has been recorded and is reflected in accrued expenses at June 30, 2017.
CPA Global provides us with certain patent management services. On February 6, 2017, CPA Global claimed that we owe approximately
$0.2 million
for certain patent maintenance services rendered. CPA Global has not filed claims against us in connection with this allegation. A liability of approximately
$0.2 million
has been recorded and is reflected in accrued expenses at June 30, 2017.
On March 9, 2016, counsel for Edge BioSystems, Inc. (“EdgeBio”) sent a demand letter on behalf of EdgeBio to us in connection with the terms of that certain Asset Purchase Agreement dated September 8, 2015 (the “EdgeBio Agreement”). EdgeBio alleges, among other things, that certain customers of EdgeBio erroneously remitted payments to us, that such payments should have been paid to EdgeBio and that we failed to remit these funds to EdgeBio in violation of the terms of the EdgeBio Agreement. On September 13, 2016, we received a demand for payment letter from EdgeBio’s counsel alleging that the balance due to EdgeBio is approximately
$0.1 million
. A liability of approximately
$0.1 million
has been recorded and is reflected in accrued expenses at June 30, 2017.
On February 17, 2017, Jesse Campbell (“Campbell”) filed a lawsuit individually and on behalf of others similarly situated against us in the District Court for the District of Nebraska alleging we have a materially incomplete and misleading proxy relating to a potential merger and that the merger agreement’s deal protection provisions deter superior offers. As a result, he alleges that we have violated Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereafter. Although we intend to defend the lawsuit, there can be no assurance regarding the ultimate outcome of this case. Given the uncertainty of litigation, the legal standards that must be met for, among other things, class certification and success on the merits, we are unable to estimate the amount of loss, or range of possible loss, at this time that may result from this action. In the event that a settlement is reached related to these matters, the amount of such settlement may be material to our results of operations and financial condition and may have a material adverse impact on our liquidity.
8. INCOME TAXES
We file a US federal consolidated income tax return and state income tax returns in various jurisdictions. We have statutes of limitation open for federal & state income tax returns related to tax years 2014 through 2016.
Income tax expense for both the three months and six months ended June 30, 2017 was
zero
as a result of recording a full valuation allowance against the deferred tax asset generated predominantly by net operating losses. For the three and six months ended June 30, 2016, the Company was organized as a limited liability company and operated under the default classification as a partnership until July 31, 2016. Consequently, prior to August 1, 2016, income tax expense or benefits were calculated at the members’ level.
We had no material interest or penalties during fiscal 2017 or fiscal 2016, and we do not anticipate any such items during the next twelve months. Our policy is to record interest and penalties directly related to uncertain tax positions as income tax expense in the condensed consolidated statements of operations.
As a result of the merger, there was a change in ownership as defined in IRS § 382. Because of this change, use of a portion of the accumulated net operating losses and tax credit carryforwards will be limited in future periods. Further, a portion of the carryforwards will expire before being applied to reduce future income tax liabilities. Since the net deferred tax assets have a full valuation allowance recorded, any limitation generated from this calculation would not effect the current financial statements.
9. STOCKHOLDERS’ EQUITY (DEFICIT)
Common Stock.
Pursuant to our Third Amended and Restated Certificate of Incorporation, as amended, we currently have
150,000,000
shares of common stock authorized for issuance.
In connection with the Merger, the Company effected a 1-for-30 reverse stock split of its common stock. This reverse stock split became effective on June 13, 2017 and, unless otherwise indicated, all share amounts, per share data, share prices, exercise prices and conversion rates set forth in these notes and the accompanying unaudited condensed consolidated financial statements have, where applicable, been adjusted retroactively to reflect this reverse stock split. Additionally, as a result of the Merger, the Company has recapitalized its stock. All historical preferred stock, common stock, restricted units, warrants and additional paid-in capital, including share and per share amounts, have been retroactively adjusted to reflect the equity structure of the combined company, including the effect of the Merger exchange ratio. Pursuant to the Merger Agreement, each outstanding share of capital stock of Precipio Diagnostics was exchanged for
10.2502
pre-reverse stock split shares of the Company's common stock.
As of December 31, 2016, there were
449,175
share of common stock outstanding.
During 2017, restricted stock of
59,563
shares were granted during the three and six months ended June 30, 2017, none of which vested prior to the merger, upon closing of the merger, all shares fully vested. During 2017,
64,593
shares were released to common stock. We recorded stock compensation expense of approximately
$28,000
related to restricted stock that vested during the six months ended June 30, 2017.
On the Closing Date, Precipio Diagnostics received
4,317,152
shares of Precipio common stock from the conversion of preferred stock, senior and junior debt, bridge notes and warrants. Also, certain advisors of Precipio Diagnostics received
321,821
shares of Precipio common stock related to services performed in connection with the Merger. The fair value of these advisory shares was
$2.2 million
at the date of the Merger and is included as a merger advisory fee expense in the accompanying financial statements.
As part of the Merger, Precipio Diagnostics also received
200,081
shares of Precipio common stock that have not been issued yet.
135,000
of these shares are being held for future issuance to advisors pending completion of certain performance obligations. If these performance obligations are not met, the shares will remain with Precipio Diagnostics as part of the unissued pool. For any shares that remain unissued, it is the intent of the Company to allocate these to Precipio Diagnostics shareholders on a pro rata basis.
Also, upon completion of the Merger, Transgenomic legacy stockholders had
1,255,119
shares of Precipio common stock outstanding.
As of June 30, 2017, there were
6,407,860
shares of Precipio common stock outstanding.
PRECIPIO, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Three and Six Months Ended June 30, 2017 and 2016
Common Stock Warrants.
Prior to the merger, in connection with the line of credit with Connecticut Innovations, the Company issued warrants to purchase
8,542
Series A Preferred shares of the Company, which were classified as an equity warrant, at an exercise price of
$2.93
per unit, subject to adjustments as defined in the warrant agreement. The warrants were valued at
$6,000
at the date of the grant utilizing the Black-Sholes model (volatility
40%
, expected life
7 years
, and risk free rate
.36%
). The value of the warrants were treated as a debt discount. At the Merger date, the warrants were exercised and then converted into shares of Precipio common stock.
In connection with the Webster Bank agreement, the Company issued
7 years
warrants to purchase
20,000
Series B Preferred shares of the Company. At the Merger date, Webster Bank declined to exercise their warrants and, per the terms of the warrant agreement, the warrants were retired.
In March 2016, the Company entered into a redemption and exchange agreement with certain member's relating to their
275,237
Preferred A Units and
208,087
Preferred B Units. Under the terms of the agreement, the unit holders would exchange their units in the Company for the issuance of debt. The aggregate purchase price per the agreement was the member's initial investment of
$750,000
for Preferred A Units and
$965,000
for Preferred B Units, along with a preferred return of
8%
, recorded as a dividend in the amount of
$432,716
. In addition to the debt issued as consideration for the member's preferred units, the Company also issued common warrant units, which allows the holders to collectively purchase common units of the Company, representing approximately
60%
of the Company at the time of exercise. At the time of issuance, this represented approximately
1,958,204
common units. The common warrant units had a $0.00 exercise price with a
ten
year expiration date. The common warrant units were classified as equity awards and the fair value upon issuance was calculated utilizing a discounted cash flow analysis to value the Company's equity and an option pricing method to allocate the value of the equity. The fair value of the warrants was determined directly utilizing the option pricing method as the exercise price was $0.00. The aggregate value of the common warrant units was
$1,421,738
, which was considered a deemed dividend. At the time of the Merger, these warrants were converted into
1,958,204
shares of Precipio common stock.
Warrants Assumed in Merger
At the time of the Merger, Transgenomic had a number of outstanding warrants related to various financing transactions that occurred between 2013-2016. Details related to year issued, expiration date, amount of underlying common shares and exercise price are included in the table below.
2017 New Bridge Warrants
During the six months ended June 30, 2017, prior to the Merger, Transgenomic completed the sale of the 2017 Bridge Notes in the amount of
$1.2 million
and the issuance of the 2017 Bridge Warrants to acquire
40,000
shares of the Company's common stock at an exercise price of
$15.00
per share, subject to anti-dilution protection. Aegis Capital Corp. acted as placement agent for the bridge financing and received Aegis Warrants to acquire
5,600
shares of Transgenomic common stock at an exercise price of
$15.00
per share. The Aegis Warrants are identical to the 2017 Bridge Warrants except that the Aegis Warrants do not have anti-dilution protection. (See Note 5 - Convertible Bridge Notes).
In connection with the Merger, the holders of the 2017 Bridge Notes, the 2017 Bridge Warrants and the Aegis Warrants agreed to exchange the 2017 Bridge Notes, the 2017 Bridge Warrants and the Aegis Warrants for 2017 New Bridge Notes and the 2017 New Bridge Warrants to acquire
45,600
shares of our common stock. (See Note 5 - Convertible Bridge Notes). The initial exercise price of the 2017 New Bridge Warrants is
$7.50
(subject to adjustments). If the Company completes a Qualified Offering (as defined in the 2017 New Bridge Warrants), the exercise price of the 2017 New Bridge Warrants will become the lower of (i)
$7.50
or (ii)
110%
of the per share offering price in the Qualified Offering, but in no event lower than
$1.50
per share.
At issuance, the 2017 New Bridge Warrants had a fair value of
$211,000
and were recorded as a debt discount to the related 2017 New Bridge Notes I, with the corresponding entry to additional paid in capital as the warrants were considered classified as equity in accordance with GAAP.
Side Warrants
In connection with the bridge financing and the assumption of certain obligations by an entity controlled by Mark Rimer (a director of the Company), the Company issued to that entity Side Warrants to purchase an aggregate of
91,429
shares of the Company's common stock at an exercise price of
$7.00
per share (subject to adjustment), with a fair value of $487,000 at the date
PRECIPIO, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Three and Six Months Ended June 30, 2017 and 2016
of issuance. The Side Warrants have a term of
5 years
and are exercisable as to
22,857
shares of the Company's common stock upon grant and as to
68,572
shares of the Company's common stock upon the entity’s performance of the assumed obligations. The Company has recorded merger advisory expense of
$414,000
related to the Side Warrants during the three and six months ended June 30, 2017. The remaining fair value of
$73,000
will be recorded as expense at the time the performance obligations are met.
The following represents a summary of the warrants outstanding as of June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue Year
|
|
Expiration
|
|
Underlying
Shares
|
|
Exercise
Price
|
|
Warrants Assumed in Merger
|
|
(1)
|
2013
|
|
January 2018
|
|
23,055
|
|
$270.00
|
|
(2)
|
2014
|
|
April 2020
|
|
12,487
|
|
$120.00
|
|
(3)
|
2015
|
|
February 2020
|
|
23,826
|
|
$67.20
|
|
(4)
|
2015
|
|
December 2020
|
|
4,081
|
|
$49.80
|
|
(5)
|
2015
|
|
January 2021
|
|
38,733
|
|
$36.30
|
|
(6)
|
2016
|
|
January 2021
|
|
29,168
|
|
$36.30
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
(7)
|
2017
|
|
June 2022
|
|
45,600
|
|
$7.50
|
|
(8)
|
2017
|
|
June 2022
|
|
91,429
|
|
$7.00
|
|
|
|
|
|
|
268,379
|
|
|
|
|
|
|
(1)
|
These warrants were issued in connection with an offering which was completed in January 2013.
|
|
|
|
|
(2)
|
These warrants were issued in connection with a private placement which was completed in October 2014.
|
|
|
|
|
(3)
|
These warrants were issued in connection with an offering which was completed in February 2015.
|
|
|
|
|
(4)
|
These warrants were issued in connection with an offering which was completed in July 2015.
|
|
|
|
|
(5)
|
These warrants were originally issued in connection with an offering in July 2015, and were amended in connection with an offering which was completed in January 2016.
|
|
|
|
|
(6)
|
These warrants were issued in connection with an offering which was completed in January 2016.
|
|
|
|
|
(7)
|
These are the 2017 New Bridge Warrants which were issued in connection with the Merger. See discussion above for additional information.
|
|
|
|
|
(8)
|
These are the Side Warrants which were issued in connection with the Merger. See discussion above for additional information
|
Series A and Series B Preferred Stock.
The Company had outstanding preferred units of
367,299
for Series A and
412,806
for Series B as of December 31, 2016. These shares have been recapitalized and are included in preferred stock. On the Closing Date, the outstanding preferred units for Series A and Series B, along with the related accumulated dividends, were converted into common shares of the Company.
Preferred Stock.
The Company’s Board of Directors is authorized to issue up to
15,000,000
shares of preferred stock in one or more series, from time to time, with such designations, powers, preferences and rights and such qualifications, limitations and restrictions as may be provided in a resolution or resolutions adopted by the Board of Directors. The authority of the Board of Directors includes, but is not limited to, the determination or fixing of the following with respect to shares of such class or any series thereof: (i) the number of shares; (ii) the dividend rate, whether dividends shall be cumulative and, if so, from which date; (iii) whether shares
PRECIPIO, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Three and Six Months Ended June 30, 2017 and 2016
are to be redeemable and, if so, the terms and amount of any sinking fund providing for the purchase or redemption of such shares; (iv) whether shares shall be convertible and, if so, the terms and provisions thereof; (v) what restrictions are to apply, if any, on the issue or reissue of any additional preferred stock; and (vi) whether shares have voting rights. The preferred stock may be issued with a preference over the common stock as to the payment of dividends. We have no current plans to issue any additional preferred stock. Classes of stock such as the preferred stock may be used, in certain circumstances, to create voting impediments on extraordinary corporate transactions or to frustrate persons seeking to effect a merger or otherwise to gain control of the Company. For the foregoing reasons, any additional preferred stock issued by the Company could have an adverse effect on the rights of the holders of the common stock.
Series A Senior Preferred Stock.
In connection with the Merger, the Company filed a Certificate of Designation with the Secretary of State of the State of Delaware on June 29, 2017, designating
4,100,000
shares of the Company’s Preferred Stock, par value
$0.01
per share, as Series A Senior Convertible Preferred Stock ("Series A Senior") and establishing the rights, preferences and privileges of the new preferred stock. Generally, the holders of the Series A Senior stock are entitled to vote as a single voting group with the holders of the Company's common stock, and the holders of the Series A Senior stock are generally entitled to that number of votes as is equal to the number of whole shares of the Company's common stock into which the Series A Senior stock may be converted as of the record date of such vote or consent.
So long as the shares of Series A Senior stock are outstanding certain actions will require the separate approval of at least two-thirds of the Series A Senior stock, including: changes to the terms (requires three-fourths approval) of the Series A Senior stock, changes to the number of authorized shares of Series A Senior stock, issuing a series of preferred stock that is senior to the Series A Senior stock, changing the size of the board of directors, certain changes to the capital stock of the Company, bankruptcy proceedings and granting security interests in the Company’s assets.
The Series A Senior stock will be convertible into the Company's common stock at any time at the then applicable conversion price. The initial conversion price for the Series A Senior stock issued in connection with the Merger and the other transactions described herein is
$3.736329
, but will be subject to anti-dilution protections including adjustments for stock splits, stock dividends, other distributions, recapitalizations and the like. Additionally, each holder of the Series A Senior stock will have a right to convert such holder's Series A Senior stock into securities issued in any future private offering of the Company's securities at a
15%
discount to the proposed price in such private offering.
The Series A Senior stock will be entitled to an annual
8%
cumulative payment in lieu of interest or dividends, payable in-kind for the first two years and in cash or in-kind thereafter, at the option of the Company. The Series A Senior stock also will be entitled to share in any dividends paid on the Company's common stock.
As discussed in Note 3 - Reverse Merger, in connection with the Merger, the Company issued 1) to holders of certain Transgenomic secured indebtedness,
802,925
shares of Series A Senior stock in an amount equal to
$3 million
, 2) to holders of certain Precipio Diagnostic indebtedness,
802,920
shares of Series A Senior stock in an amount equal to
$3 million
and 3) to certain investors,
107,056
shares of Series A Senior stock in exchange for
$400,000
in a private placement. The Company had outstanding Series A Senior shares of
1,712,901
as of June 30, 2017.
We determined that there was a beneficial conversion feature in connection with the issuances of the Series A Senior stock since the conversion price of
$3.736329
was at a discount to the fair market value of the Company's common stock at issuance date. The Series A Senior stock is non-redeemable and as a result, the Company recognized the full beneficial conversion feature in the amount of
$5.2 million
as a deemed dividend at the time of issuance.
10. FAIR VALUE
FASB guidance on fair value measurements, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements for our financial assets and liabilities, as well as for other assets and liabilities that are carried at fair value on a recurring basis in our condensed consolidated financial statements.
FASB guidance establishes a three-level fair value hierarchy based upon the assumptions (inputs) used to price assets or liabilities. The three levels of inputs used to measure fair value are as follows:
PRECIPIO, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Three and Six Months Ended June 30, 2017 and 2016
Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2—Observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets; and
Level 3—Unobservable inputs reflecting our own assumptions and best estimate of what inputs market participants would use in pricing the asset or liability.
Common Stock Warrant Liabilities.
Certain of our issued and outstanding warrants to purchase shares of common stock do not qualify to be treated as equity and, accordingly, are recorded as a liability.
2016 Warrant Liability
The Company assumed the 2016 Warrant Liability in the merger and it represents the fair value of Transgenomic warrants issued in January 2016, of which,
25,584
warrants remain outstanding as of June 30, 2017. We are required to record these instruments at fair value at each reporting date and changes are recorded as a non-cash adjustment to earnings. The gains or losses included in earnings are reported in other income (expense) in our condensed consolidated Statement of Operations.
The 2016 Warrant Liability is considered a Level 3 financial instrument and is valued using a binomial lattice simulation model. This method is well suited to valuing options with non-standard features. Assumptions and inputs used in the valuation of the common stock warrants include: our equity value, which was estimated using our stock price of
$9.00
as of June 30, 2017; volatility of
121%
; and a risk-free interest rate of
1.64%
.
During the three months ended June 30, 2017, the changes in the fair value of the liability measured using significant unobservable inputs (Level 3) were comprised of the following:
|
|
|
|
|
|
|
|
|
Dollars in Thousands
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
June 30, 2017
|
|
Beginning balance at April 1
|
|
$
|
—
|
|
|
Additions - liability assumed in the Merger
|
|
615
|
|
|
Total (gains) or losses:
|
|
|
|
Recognized in earnings
|
|
3
|
|
|
Balance at June 30
|
|
$
|
618
|
|
11. STOCK OPTIONS
Stock Options.
The Company's 2006 Equity Incentive Plan (the "2006 Plan") was terminated as to future awards on July 12, 2016. The Company's 2017 Stock Option and Incentive Plan (the "2017 Plan") was adopted by the Company's stockholders on June 5, 2017 and will expire on June 5, 2027. The following table summarizes stock option activity under our plans during the
six
months ended
June 30, 2017
:
PRECIPIO, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Three and Six Months Ended June 30, 2017 and 2016
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
Weighted-Average
Exercise Price
|
|
Outstanding at January 1, 2017
|
24,600
|
|
|
$
|
107.83
|
|
|
Granted
|
—
|
|
|
—
|
|
|
Forfeited
|
(2,460
|
)
|
|
75.76
|
|
|
Outstanding at June 30, 2017
|
22,140
|
|
|
$
|
111.39
|
|
|
Exercisable at June 30, 2017
|
19,908
|
|
|
$
|
119.13
|
|
As of
June 30, 2017
, there were
21,713
options that were vested or expected to vest with an aggregate intrinsic value of
zero
with a remaining weighted average contractual life of
6.9
years.
Stock Appreciation Rights (
“
SARs
”
)
As of
June 30, 2017
,
2,777
outstanding and exercisable SARs shares were vested or expected to vest. All outstanding SARs were issued solely to a former chief executive officer. The weighted-average exercise price of these SARs was
$129.60
per share and the aggregate intrinsic value was
zero
with a remaining weighted average contractual life of
6.25
years. During the six months ended June 30, 2017, the SARs liability decreased approximately
$5,000
and at June 30, 2017, a liability of approximately
$7,000
was recorded in accrued expenses.
12. SUBSEQUENT EVENTS
On August 1, 2017, the Company announced that it was planning a public offering of common stock and warrants in an underwritten public offering. There can be no assurances as to whether the offering will be completed, or as to the size or terms of the offering. Even if the offering is completed, the Company will need to raise additional funding.