T2 Biosystems(US:TTOO)2024-08-08 20:49PART I FINANCIAL INFORMATION This section presents the unaudited financial statements and management's analysis of the company's financial condition and operational results Item 1. Financial Statements (unaudited) The unaudited financial statements for the period ended June 30, 2024, reveal a precarious financial position with decreased assets, a stockholders' deficit, and significant net losses, raising substantial doubt about the company's ability to continue as a going concern Condensed Consolidated Balance Sheets The balance sheet as of June 30, 2024, shows a significant decrease in total assets and liabilities, leading to a reduced stockholders' deficit Condensed Consolidated Balance Sheet Data (in millions) | Account | June 30, 2024 (Millions USD) | December 31, 2023 (Millions USD) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $4.2 | $15.7 | | Total current assets | $13.0 | $25.2 | | Total assets | $21.7 | $34.8 | | Liabilities & Stockholders' Deficit | | | | Notes payable to related party | $11.8 | $41.3 | | Total current liabilities | $21.8 | $56.2 | | Total liabilities | $27.6 | $62.8 | | Total stockholders' deficit | ($5.9) | ($28.0) | Condensed Consolidated Statements of Operations The statements of operations show flat revenue for Q2 2024 and the first half of 2024, with a significant net loss primarily driven by fair value adjustments Statement of Operations Highlights (in millions, except per share data) | Metric | Q2 2024 (Millions USD) | Q2 2023 (Millions USD) | H1 2024 (Millions USD) | H1 2023 (Millions USD) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $2.0 | $2.0 | $4.0 | $4.0 | | Loss from Operations | ($9.6) | ($13.1) | ($22.2) | ($26.7) | | Net Loss | ($9.0) | ($6.3) | ($22.5) | ($24.3) | | Net Loss Per Share | ($0.64) | ($7.84) | ($2.34) | ($51.23) | Condensed Consolidated Statements of Cash Flows Cash flow statements for H1 2024 show significant cash usage in operations, reduced financing inflows, and a substantial net decrease in cash, impacting liquidity Cash Flow Summary for Six Months Ended June 30 (in millions) | Cash Flow Activity | 2024 (Millions USD) | 2023 (Millions USD) | | :--- | :--- | :--- | | Net cash used in operating activities | ($20.9) | ($25.3) | | Net cash used in investing activities | $0.0 | ($0.2) | | Net cash provided by financing activities | $9.5 | $30.2 | | Net change in cash | ($11.4) | $4.8 | | Cash at end of period | $4.8 | $16.6 | Notes to Condensed Consolidated Financial Statements The notes detail significant events and accounting policies, including substantial doubt about going concern, extensive debt restructuring, the expiration of a key government contract, and an ongoing legal dispute - The company has concluded that substantial doubt exists about its ability to continue as a going concern for at least 12 months from the financial statement issuance date, as its cash of $4.8 million as of June 30, 2024, is not sufficient to fund operations beyond mid-third quarter 2024 without additional financing1924 - The company has engaged in significant debt restructuring with its lender, CRG, converting $30.0 million of debt principal into common and preferred stock in 2024, following a $10.0 million conversion in July 20239092 - The milestone-based product development contract with the Biomedical Advanced Research and Development Authority (BARDA) expired in September 2023, which may impact funding for the development of next-generation products17149 - The company is in a legal dispute with a landlord over a terminated lease for a Billerica, MA facility, where the landlord drew upon a $1.0 million security deposit and is seeking further damages, while the company has filed a counterclaim154156 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management reiterates substantial doubt about the company's ability to continue as a going concern, detailing strategic restructuring, flat revenue, decreased expenses, and significant debt-for-equity swaps with its primary lender Business Overview and Going Concern The company, an in-vitro diagnostics firm, faces substantial doubt about its going concern ability due to critically low cash reserves and is actively exploring strategic alternatives - Management states that cash and cash equivalents of $4.2 million on June 30, 2024, will not be sufficient to fund the current operating plan through the third quarter of 2024, raising substantial doubt about the company's ability to continue as a going concern167170 - As part of a strategic restructuring, the company initiated a workforce reduction of nearly 30% in May 2023 and is exploring strategic alternatives, including acquisition, merger, or sale of assets168 Results of Operations Q2 2024 product revenue remained flat, with decreased operating expenses, while the six-month net loss improved due to cost efficiencies despite flat total revenue Results of Operations Comparison (in millions) | Line Item | Q2 2024 (Millions USD) | Q2 2023 (Millions USD) | Change (Millions USD) | H1 2024 (Millions USD) | H1 2023 (Millions USD) | Change (Millions USD) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Product Revenue | $2.0 | $2.0 | ($0.0) | $4.0 | $3.6 | $0.4 | | Contribution Revenue | $0.0 | $0.0 | $0.0 | $0.0 | $0.4 | ($0.4) | | Total Revenue | $2.0 | $2.0 | ($0.0) | $4.0 | $4.0 | ($0.0) | | Cost of Product Revenue | $2.7 | $4.9 | ($2.2) | $6.9 | $8.9 | ($2.0) | | R&D Expense | $3.4 | $3.9 | ($0.5) | $7.1 | $8.3 | ($1.2) | | SG&A Expense | $5.5 | $6.3 | ($0.8) | $12.2 | $13.6 | ($1.4) | | Loss from Operations | ($9.6) | ($13.1) | $3.5 | ($22.2) | ($26.7) | $4.6 | Liquidity and Capital Resources The company's liquidity is critically low, with insufficient cash to fund operations beyond mid-Q3 2024, necessitating additional financing efforts and new equity distribution agreements - The company believes its cash position is insufficient to fund future operations without additional financing by mid-third quarter 2024216221 - In H1 2024, the company raised $2.2 million under its Equity Distribution Agreement with Canaccord, which was terminated on July 19, 2024217218 - On July 19, 2024, the company entered into a new Equity Distribution Agreement with H.C. Wainwright for up to $14.7 million in gross proceeds, under which it sold 120,865 shares for net proceeds of $0.6 million subsequent to quarter-end219 Borrowing Arrangements and Nasdaq Compliance The Term Loan with CRG was significantly amended, including debt-for-equity swaps and a reduced liquidity covenant, while the company regained Nasdaq MVLS compliance but remains under a mandatory monitor - The Term Loan with CRG was amended multiple times, including debt-for-equity swaps of $15.0 million in April 2024 and $15.0 million in May 2024, extending the maturity date to December 31, 2025, with a permanent minimum liquidity covenant of $500,000237 - The entire Term Loan is classified as a current liability because management believes it is probable the company will not be able to comply with the liquidity covenant without raising additional funds239 - The company regained compliance with the Nasdaq MVLS Rule on May 21, 2024, but is subject to a Mandatory Panel Monitor for one year, meaning any new non-compliance will not permit additional time to regain compliance225255 Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, T2 Biosystems is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company, T2 Biosystems is not required to provide quantitative and qualitative disclosures about market risk242 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of June 30, 2024, due to unremediated material weaknesses in internal control over financial reporting - The CEO and CFO concluded that as of June 30, 2024, the company's disclosure controls and procedures were not effective244 - The ineffectiveness is due to previously disclosed material weaknesses related to accounting for unusual transactions, sales demand forecasts, inventory counts, and review of tax provisions, which remain unremediated244 - The company has implemented enhanced procedures to address the weaknesses, but the remediation plan is not yet fully implemented and tested245246 PART II OTHER INFORMATION This section covers legal proceedings, key risk factors, equity security sales, other information, and a list of exhibits Item 1. Legal Proceedings The company is involved in an ongoing legal dispute with a landlord over a terminated lease, including claims for damages and a counterclaim for breach of contract - The company is in a legal dispute over a terminated lease for a Billerica, MA property, where the landlord terminated the lease in January 2023, kept the $1.0 million security deposit, and is seeking further damages249250 - The company has filed a counterclaim against the landlord, alleging breach of contract, unlawful use of the security deposit, and fraudulent misrepresentations, and intends to pursue all available legal remedies251 Item 1A. Risk Factors Key risks include substantial doubt about the company's ability to continue as a going concern due to insufficient cash and the significant risk of Nasdaq delisting despite recent compliance regain - A primary risk is the substantial doubt about the company's ability to continue as a going concern, with cash reserves insufficient to fund operations beyond mid-Q3 2024253 - There is a significant risk of being delisted from Nasdaq; although the company regained compliance with the MVLS Rule in May 2024, it is subject to a one-year Mandatory Panel Monitor, and any new non-compliance could result in delisting without an additional grace period254255 Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities This section is not applicable for the current reporting period - Not applicable256 Item 5. Other Information No directors or executive officers adopted or terminated Rule 10b5-1 trading arrangements during the fiscal quarter ended March 31, 2024 - No directors or executive officers adopted or terminated a Rule 10b5-1 trading plan during the quarter256 Item 6. Exhibits, Financial Statement Schedules This section lists all exhibits filed with the 10-Q report, including corporate documents, various agreements, and officer certifications