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Precipio (PRPO)

Filed: 30 Jul 17, 8:00pm

Exhibit 99.3

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

The following unaudited pro forma combined financial information has been prepared to assist you in your analysis of the financial effects of the merger of New Haven Labs Inc. (“Merger Sub”), a wholly owned subsidiary of Transgenomic Inc. (“Transgenomic”), with Precipio Diagnostics, LLC (“Precipio”). Pursuant to the merger, which closed on June 29, 2017, Merger Sub merged with and into Precipio, with Precipio surviving the merger as a wholly-owned subsidiary of the combined company. In connection with the merger, the combined company changed its name from Transgenomic, Inc. to Precipio, Inc. (“New Precipio”). The unaudited pro forma combined financial information was prepared using the historical consolidated financial statements of Transgenomic and Precipio. This information should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and accompanying notes of Transgenomic and Precipio. All Transgenomic historical financial statement information can be derived from Transgenomic’s Form10-K and10-Q filings.

The merger, which closed on June 29, 2017, will be accounted for as a reverse acquisition under the acquisition method of accounting in accordance with GAAP. The accompanying unaudited pro forma combined financial information gives effect to the merger, assuming the issuance of New Precipio common stock and preferred stock. The pro forma adjustments related to the merger are preliminary and based on management’s best estimates of fair value. Such adjustments do not reflect the final purchase price or final allocation of the excess of the purchase price over the fair value of the assets and liabilities assumed in connection with the merger. A final determination of these estimated fair values will be based on the actual fair values of acquired assets and liabilities assumed of Transgenomic that exist as of the date of completion of the merger. Accordingly, the pro forma adjustments, including the allocations of purchase price, are preliminary and have been made solely for the purpose of providing unaudited pro forma consolidated financial information. Final adjustments, the accounting for which will not be effective until the filing of our second quarter 2017 results on Form10-Q, will result in modifications to the final purchase price and allocation of the purchase price, which will affect the fair value assigned to the acquired assets and liabilities assumed. The effect of the changes to the statements of operations could be material. The unaudited pro forma combined financial information is not necessarily indicative of the combined results of operations or financial position that might have been achieved for the dates or periods indicated, nor is it necessarily indicative of the results of operations or financial position that may occur in the future.

The historical consolidated financial information has been adjusted in the unaudited pro forma combined financial information to give effect to pro forma events that are (1) directly attributable to the merger, (2) factually supportable, and (3) with respect to the statements of operations, expected to have a continuing impact on the combined results. The pro forma combined financial information does not reflect revenue opportunities and cost savings that New Precipio expects to realize after the merger. No assurance can be given with respect to the estimated revenue opportunities and operating cost savings that are expected to be realized as a result of the merger. The pro forma combined financial information also does not reflect expenses related to integration activity or exit costs that may be incurred by Transgenomic or Precipio in connection with this merger.

The unaudited pro forma combined balance sheet assumes that the merger took place on March 31, 2017 and combines Transgenomic’s March 31, 2017 consolidated balance sheet with the balance sheet of Precipio as of March 31, 2017. The unaudited pro forma combined statements of operations for the three months ended March 31, 2017 assume that the merger took place on January 1, 2017. The unaudited pro forma combined statement of operations for the three months ended March 31, 2017 combines Transgenomic’s unaudited condensed consolidated statement of operations for the three months ended March 31, 2017 with Precipio’s unaudited condensed statement of operations for the three months ended March 31, 2017. The unaudited pro forma combined statements of operations for the fiscal year ended December 31, 2016 assume that the merger took place on January 1, 2016. The unaudited pro forma combined statement of operations for the fiscal year ended December 31, 2016 combines Transgenomic’s audited consolidated statement of operations for the fiscal year ended December 31, 2016 with Precipio’s audited statement of operations for the fiscal year ended December 31, 2016.


UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

As of March 31, 2017

(in thousands)

 

   Historical  Pro Forma
Adjustments
  Notes   New Precipio
Combined
 
   New Precipio (i)  Precipio (j)     

ASSETS

       

Current Assets:

       

Cash and cash equivalents

  $59  $33  $1,200   g   $1,292 

Accounts receivable, net

   279   380   —       659 

Inventories

   15   106   —       121 

Other current assets

   190   8   —       198 

Assets held for sale

   24   —     —       24 
  

 

 

  

 

 

  

 

 

    

 

 

 

Total current assets

   567   527   1,200     2,294 

Property and Equipment, net

   127   256   —       383 

Other Assets:

       

Goodwill

   —     —     12,572   a    12,572 

Acquired intangibles

   —    ��—     16,060   b    16,060 

Intangibles, net

   531   —     (531  c    —   

Other assets

   4   10   —       14 
  

 

 

  

 

 

  

 

 

    

 

 

 
  $1,229  $793  $29,301    $31,323 
  

 

 

  

 

 

  

 

 

    

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

       

Current Liabilities:

       

Current maturities of long-term debt . .

  $7,368  $1,153  $(7,138  d,f,g   $1,383 

Accounts payable

   8,509   1,253   —       9,762 

Accrued compensation

   192   168   —       360 

Accrued expenses

   3,398   758   (1,668  d,f    2,488 

Deferred revenue

   133   92   —       225 

Other liabilities

   1,529   47   —       1,576 
  

 

 

  

 

 

  

 

 

    

 

 

 

Total current liabilities

   21,129   3,471   (8,806    15,794 

Long Term Liabilities:

       

Long-term debt

   —     4,389   (3,845  d    544 

Common stock warrant liability

   615   —     —       615 

Other long-term liabilities

   128   151   —       279 
  

 

 

  

 

 

  

 

 

    

 

 

 

Total liabilities

   21,872   8,011   (12,651    17,232 

Stockholders’ deficit:

       

Convertible preferred stock

   2   2,895   (2,897  d,e   
         8  f     
         1  g     
     8   d    17 

Common stock

   268   52   1   d   
         —    e     
     4   f   
     (259  h    66 

Additionalpaid-in capital

   206,342   —     (180,728  a – h    25,614 

Warrants

   —     1,434   (1,434  d    —   

Restricted units

   —     7   (7  d    —   

Accumulated deficit

   (227,255  (11,606  227,255   a    (11,606
  

 

 

  

 

 

  

 

 

    

 

 

 

Total stockholders’ deficit

   (20,643  (7,218  41,952     14,091 
  

 

 

  

 

 

  

 

 

    

 

 

 
  $1,229  $793  $29,301    $31,323 
  

 

 

  

 

 

  

 

 

    

 

 

 


UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

For the Three Months Ended March 31, 2017

(dollars in thousands)

 

   Historical  Pro Forma
Adjustments
  Notes   New Precipio
Combined
 
   New Precipio (f)  Precipio (h)     

Net sales

  $658  $249  $—      $907 

Cost of goods sold

   459   182   (41  a    600 
  

 

 

  

 

 

  

 

 

    

 

 

 

Gross profit

   199   67   41     307 

Operating Expenses

   1,754   663   251   a,b    2,668 
  

 

 

  

 

 

  

 

 

    

 

 

 

Operating loss from continuing operations

   (1,555  (596  (210    (2,361

Other Expense:

       

Interest expense, net

   (247  (162  220   c    (189

Warrant revaluation

   (33  —     —       (33

Other, net

   —     —     —       —   
  

 

 

  

 

 

  

 

 

    

 

 

 

Total other expense

   (280  (162  220     (222
  

 

 

  

 

 

  

 

 

    

 

 

 

Loss from continuing operations before income taxes

   (1,835  (758  10     (2,583

Income tax

   —     —     —       —   
  

 

 

  

 

 

  

 

 

    

 

 

 

Net loss from continuing operations

   (1,835  (758  10     (2,583
  

 

 

  

 

 

  

 

 

    

 

 

 

Preferred stock/unit dividends

   —     —     (128  d    (128
  

 

 

  

 

 

  

 

 

    

 

 

 

NET LOSS FROM CONTINUING OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS

  $(1,835 $(758 $(118   $(2,711
  

 

 

  

 

 

  

 

 

    

 

 

 

Basic and diluted loss per common share from continuing operations

  $(0.07     $(0.41

Basic and diluted weighted-average shares of common stock outstanding (Note 4)

   26,779,835    (20,171,869  e    6,607,966 


UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

For the Twelve Months Ended December 31, 2016

(dollars in thousands)

 

   Historical  Pro Forma
Adjustments
  Notes   New Precipio
Combined
 
  New Precipio (g)  Precipio (i)     

Net sales

  $1,557  $1,723  $—      $3,280 

Cost of goods sold

   1,762   970   (198  a    2,534 
  

 

 

  

 

 

  

 

 

    

 

 

 

Gross profit

   (205  753   198     746 

Operating Expenses

   7,614   2,465   1,004   a,b    11,083 
  

 

 

  

 

 

  

 

 

    

 

 

 

Operating loss from continuing operations

   (7,819  (1,712  (806    (10,337

Other Income (Expense):

       

Interest expense, net

   (1,038  (518  866   c    (690

Warrant revaluation

   788   —     —       788 

Other, net

   (200  3   —       (197
  

 

 

  

 

 

  

 

 

    

 

 

 

Total other income (expense)

   (450  (515  866     (99
  

 

 

  

 

 

  

 

 

    

 

 

 

Loss from continuing operations before income taxes

   (8,269  (2,227  60     (10,436

Income tax

   —     —     —       —   
  

 

 

  

 

 

  

 

 

    

 

 

 

Net loss from continuing operations.

   (8,269  (2,227  60     (10,436
  

 

 

  

 

 

  

 

 

    

 

 

 

Preferred stock/unit dividends

   (393  (432  313   d    (512

Deemed dividends on exchange of preferred units

   —     (1,422  1,422   j    —   
  

 

 

  

 

 

  

 

 

    

 

 

 

NET LOSS FROM CONTINUING OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS

  $(8,662 $(4,081 $1,795    $(10,948
  

 

 

  

 

 

  

 

 

    

 

 

 

Basic and diluted loss per common share from continuing operations

  $(0.38     $(1.66

Basic and diluted weighted-average shares of common stock outstanding (Note 4)

   22,689,831    (16,081,865  e    6,607,966 


NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

1. Description of Transaction and Basis of Presentation

Description of Transaction.

On June 29, 2017 (“Closing Date”), Transgenomic, Inc., or Transgenomic, completed its merger, or the Merger, with Precipio Diagnostics, LLC, a privately held Delaware limited liability company, or Precipio, in accordance with the terms of the Agreement and Plan of Merger, or the Merger Agreement, dated October 12, 2016, as amended on February 2, 2017 and June 29, 2017, by and among Transgenomic, Precipio and New Haven Labs Inc., or Merger Sub, a wholly-owned subsidiary of Transgenomic. Pursuant to the Merger Agreement, Merger Sub merged with and into Precipio, with Precipio surviving the Merger as a wholly-owned subsidiary of the combined company. In connection with the Merger, the combined company changed its name from Transgenomic, Inc. to Precipio, Inc. (“New Precipio”) and effected a1-for-30 reverse stock split of its common stock.

On the Closing Date, the outstanding common and preferred units of Precipio and certain debt of Precipio were converted into (i) 5,352,847 shares of New Precipio common stock, together with cash in lieu of fractional units, and (ii) 802,920 shares of New Precipio preferred stock with an aggregate face amount equal to $3 million.

In connection with the Merger, on the Closing Date, New Precipio also issued promissory notes and shares of New Precipio preferred and common stock in a number of transactions, whereby:

 

  Holders of certain secured indebtedness of Transgenomic received in exchange for such indebtedness 802,925 shares of New Precipio preferred stock in an amount equal to $3 million, and 352,630 shares of New Precipio common stock;

 

  Holders of Transgenomic preferred stock converted it into 7,155 shares of New Precipio common stock; and

 

  New Precipio issued 107,056 shares of New Precipio preferred stock to certain investors in exchange for $400,000 in a private placement. New Precipio also completed the sale of an aggregate of $800,000 of promissory notes pursuant to a securities purchase agreement.

Basis of Presentation.

The historical consolidated financial information has been adjusted in the unaudited pro forma combined financial information to give effect to pro forma events that are (1) directly attributable to the merger, (2) factually supportable, and (3) with respect to the statements of operations, expected to have a continuing impact on the combined results. The pro forma combined financial information does not reflect revenue opportunities and cost savings that New Precipio expects to realize after the merger. No assurance can be given with respect to the estimated revenue opportunities and operating cost savings that are expected to be realized as a result of the merger. The pro forma financial information also does not reflect expenses related to integration activity or exit costs that may be incurred by Transgenomic or Precipio in connection with this merger. The final determination of the purchase price allocation will be based on the fair values of assets acquired and liabilities assumed as of the date the transaction closes, and could result in a significant change to the unaudited pro forma combined financial information, including goodwill.

Prior to the Closing Date, Transgenomic completed a1-for-30 reverse stock split with an effective date of June 13, 2017. All share and per share amounts have been adjusted for disclosure in the unaudited pro forma condensed combined financial statements.


2. Estimated Purchase Consideration

The purchase consideration based on the value of the equity of Transgenomic, the accounting acquiree, is as follows:

 

 

(in thousands)

    

Estimated equity market cap

  $6,088 

Fair value of preferred share conversions

   49 

Fair value of debt conversions

   8,551 
  

 

 

 

Estimated purchase consideration

  $14,688 
  

 

 

 

In estimating the 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 New Precipio common stock and certain of Transgenomic debt and accrued interest converted into 352,630 shares of New Precipio common stock and 802,925 shares of New Precipio preferred stock, face value $3 million with an 8% annual dividend.

Preliminary Allocation of Estimated Purchase Consideration

The following table sets forth a preliminary allocation of the estimated 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:

 

 

(in thousands)

    

Current and other assets

  $419 

Property and equipment

   29 

Goodwill

   12,572 

Other intangible assets(1)

   16,060 
  

 

 

 

Total assets

  $29,080 

Current liabilities

  $13,604 

Other liabilities

   788 
  

 

 

 

Total liabilities

   14,392 
  

 

 

 

Net assets acquired

  $14,688 
  

 

 

 

 

 (1)Other intangible assets consist of:

 

Acquired technology

  $14,310 

Customer relationships

   240 

Non-compete agreements

   20 

Trademark and trade name

   40 

Backlog

   180 

In-process research and development

   1,270 
  

 

 

 

Total

  $16,060 

3. Pro Forma Adjustments

The pro forma adjustments included in the unaudited pro forma combined financial statements are as follows:

Pro Forma Adjustments — Balance Sheet

 

 a)Reflects goodwill resulting from the acquisition method of accounting based on preliminary estimates of the fair value of the assets and liabilities of Transgenomic. This also includes the elimination of Transgenomic’s historical stockholders’ deficit accounts because Transgenomic is not considered to be the accounting acquirer.


 b)Reflects acquired intangibles resulting from the acquisition method of accounting based on preliminary estimates of the fair value of the assets and liabilities of Transgenomic.

 

 c)Elimination of historical intangibles of Transgenomic.

 

 d)In the aggregate, holders of Precipio common stock, preferred stock and certain debt and accrued interest received 5,352,847 shares of New Precipio common stock and 802,920 shares of New Precipio preferred stock, face value $3 million with an 8% annual dividend.

 

 e)Transgenomicpre-merger preferred stock converted to common stock.

 

 f)Transgenomicpre-merger debt and accrued interest converted to common stock and $3 million of New Precipio preferred stock with an 8% annual dividend.

 

 g)Issuance of 107,056 shares of New Precipio preferred stock, face value $0.4 million, and $0.8 million of convertible notes to investors in a private placement.

 

 h)To reflect the impact on Transgenomic’s common stock for its1-for-30 reverse stock split effective June 13, 2017.

 

 i)Refer to Transgenomic’s Quarterly Report on Form10-Q for the three months ended March 31, 2017, filed with the SEC on May 18, 2017.

 

 j)Refer to Precipio’s unaudited condensed financial statements included as Exhibit 99.1 to this report on Form8-K/A

Pro Forma Adjustments — Statements of Operations

 

 a)Eliminate amortization expense related to Transgenomic historical intangibles.

 

 b)Record amortization expense related to newly acquired intangibles assuming useful lives between 1 – 20 years.

 

 c)Eliminate interest expense for Transgenomic interest bearing debt that was converted to New Precipio common stock and preferred stock and record new interest on $0.8 million note issued at merger with 8% interest.

 

 d)Elimination of historical dividends and recording dividends on $6.4 million of New Precipio preferred stock with 8% annual dividend.

 

 e)To reflect the issuance of New Precipio common stock in connection with the Merger and the impact of the1-for 30 reverse stock split that became effective on June 13, 2017.

 

 f)Refer to Transgenomic’s Quarterly Report on Form10-Q for the three months ended March 31, 2017, filed with the SEC on May 18, 2017.

 

 g)Refer to Transgenomic’s Annual Report on Form10-K for the fiscal year ended December 31, 2016, filed with the SEC on April 13, 2017.

 

 h)Refer to Precipio’s quarterly condensed financial statements for the three months ended March 31, 2017 included as Exhibit 99.1 to this report on Form8-K/A.

 

 i)Refer to Precipio’s audited financial statements included as Exhibit 99.2 to this report on Form8-K/A.

 

 j)Elimination of historical deemed dividends.


4. New Precipio Common Shares and Preferred Shares

 

   Shares 

New Precipio Common Stock:

  

Transgenomic:

  

Outstanding common shares at Closing Date

   895,334 

Conversion of preferred stock

   7,155 

Conversion of debt

   352,630 

Precipio:

  

Conversion of common units, preferred units and debt

   5,352,847 
  

 

 

 

Total New Precipio common shares, par value $0.01

   6,607,966 
  

 

 

 

New Precipio Preferred Stock:

  

Total New Precipio preferred stock, par value $0.01

   1,712,901