Cancer Genetics, Inc.

Cancer Genetics, Inc. (NASDAQ: CGIX), is a drug discovery company, and is engaged in preclinical oncology and immuno-oncology services.

Key Updates:

• Fund Raising: The group recently reported that it had raised funds of USD 17.5 million through the issuance of 2,777,778 shares, at a price consideration of USD 6.30 per share. As per the Management, the above funds would be used for general corporate purposes, including working capital and capital expenditures. Earlier, the group confirmed a private placement amounting ~USD 10 million through the issuance of 2,758,624 shares of its common stock and warrants.
• Merger with StemoniX: The group reported its merger with StemoniX on October 03, 2020, at a price consideration of USD 3 million. The above collaboration would provide CGIX with best-in-class drug discovery platform converging in-vivo, in-vitro and in-silico innovations. Moreover, StemoniX has created highly functional human spheroids at a larger scale, which is a key positive and would support the company’s future operations.
• Deteriorating Financial Metrics: The group reported a significantly higher loss from its continuing operations at USD 3.058 million in 9MFY20, as compared to a loss of USD 0.828 million, a year ago. Moreover, revenues and gross profit for 9MFY20 remained lower at USD 4.44 million and USD 2.074 million, respectively, as compared to USD 5.416 million and USD 2.687 million, a year ago.

Source: Company Reports

Q3FY20 Financial Highlights:

• CGIX announced its quarterly results, wherein the group reported revenue of USD 1.568 million, lower than USD 2.069 million in the previous corresponding period.
• Gross profit declined to USD 0.656 million, compared to USD 1.076 million in pcp.
• Total operating expense stood significantly lower at USD 2.025 million, as compared to USD 4.718 million in pcp, which resulted in a lower loss from operations at USD 1.369 million, as compared to a loss of USD 3.642 million in Q3FY19.
• Net loss stood at USD 1.353 million, as compared to a net profit of USD 1.975 million in Q3FY19.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The company failed to report a consistent revenue in the recent past, which has led to higher cash outflows and remains a key concern. Continuation of the above trend would dampen the company’s profitability in the coming quarters.

Stock Recommendation:

The company intends to use its highly scalable platform for early discovery, pre-clinical, and pharmacology provides guidance, preparation of samples, and clinical trial design. The recent collaboration with StemoniX along with recent fundraising through equity issuance has fueled the stock of CGIX in the recent past, and the stock soared ~113% and ~196% in the last one month and three months, respectively. However, considering the current operating performance, we prefer to remain on the sidelines. On the valuation front, the stock is available at Price to Sales multiple of 4.34x (TTM), which is significantly higher compared to the industry median of 1.4x. Hence, we recommend an ‘Avoid’ rating on the stock at the closing price of USD 6.72 on February 12, 2021.

CGIX Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Tengasco Inc

Tengasco Inc (AMEX: TGC), is a U.S based company engaged in the business of exploration and production of oil and natural gas. Its area of oil exploration and production is in Kansas. The company through its subsidiary operates treatment and delivery facilities in Church Hill, Tennessee, for the extraction of methane gas from a landfill for eventual sale as natural gas and for the generation of electricity.

Key Highlights 

• Undergoing legal investigations: Various legal entities are busy in investigating the company regarding possible breaches of fiduciary duty and other violations of law by the board of directors of Tengasco, Inc. in connection with the company's proposed merger with Riley Exploration – Permian, LLC.

• Merging with Riley Exploration – Permian, LLC: On October 21, 2020, the company and Riley Exploration – Permian, LLC announced that they have entered into a definitive merger agreement in an all-stock transaction. Under the terms of the merger agreement, Tengasco would issue approximately 203 million Tengasco common stock to Riley members at the transaction's closing. Following the closing of the transaction, Riley's current members would own 95% of Tengasco and the current Tengasco stockholders would own the remaining 5%. In addition, Riley would become a wholly-owned subsidiary of Tengasco. The transaction is expected to close during Q1 2021. Once the merger completes, the company will change its name to Riley Exploration Permian, Inc. Its common stock will continue to trade on the NYSE American, but under a new symbol, it is expected to be “REPX.”

• Acquiring synergies: Riley has a strong balance sheet with low debt. On a TTM basis, the company’s Adjusted EBITDAX ratio stands at 1.4:1. Furthermore, the company has grown production on a sequential basis and has a record of paying cash dividends to common unitholders for the past six quarters totalling USD 25 million to date. 

Financial overview of Q3 2020

Source: Company

• In Q3 2020, the Company recognized USD 765,000 in revenues compared to USD 1.2 million in Q3 2019. The USD 450,000 decrease in net revenues was primarily due to the decline in the average oil price from USD 51.18 per barrel in Q3 2019 to USD 36.03 per barrel in Q3 2020, and lower oil sales volumes. 
• Production costs and taxes decreased by USD 167,000 from USD 913,000 in Q3 2019 to USD 746,000 in Q3 2020. This decrease was primarily due to lower well repair costs and a change in the oil inventory adjustment.
• In Q3 2020, the G&A costs increased to USD 685,000, compared to USD 297,000 in Q3 2019. This increase was primarily due to costs incurred related to the announced transaction with Riley Exploration – Permian, LLC.
• The Company's net loss in Q3 2020, stood at USD 813,000 compared to USD 182,000 in the previous corresponding period. An increase in net loss was primarily due to a decrease in revenues and increased general and administrative expenses, partially offset by a decline in production costs. 

Risks associated with investment

As the company is in the exploration business of oil and gas, their revenues are correlated to the oil prices. Any volatility in oil prices is likely to affect the group’s performance. Other essential factors which could impact their financial performance is a low demand for oil and gas. 

Stock recommendation

Recently, the company announced merger with Riley Exploration – Permian, LLC. Following the closing of the transaction, Riley's current members will own 95% of Tengasco and the current Tengasco stockholders will own the remaining 5%. After the merger, the company will be changing its name to Riley Exploration Permian, Inc. and its common stock will continue to trade on the NYSE American, but under a new symbol, expected to be "REPX." but at present, various legal entities are busy in investigating the company regarding possible breaches of fiduciary duty and other violations of law by the board of directors of Tengasco Inc. in connection with this proposed merger draws a caution line with the investors. Hence, given the above fact, we prefer to remain on the side-line. Accordingly, we recommend investors to "Avoid" the stock at the closing price of USD 3.35 on February 12, 2021.

Source: Refinitiv (Thomson Reuters)

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