UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| |
☒ | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended |
2022 | |
| |
| OR |
| |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from _____ to _____ |
Commission File Number: 001-36439
PRECIPIO, INC.
(Exact name of registrant as specified in its charter)
| | |
Delaware | 91-1789357 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
| | |
4 Science Park, New Haven, CT | 06511 | |
(Address of principal executive offices) | (Zip Code) |
(203) 787-7888
(Registrant’s telephone number, including area code)
a | ||
Securities registered pursuant to Section 12(b) of the Act: | ||
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value per share | PRPO | The Nasdaq Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ◻ | Accelerated filer | ◻ | ||
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | ||
Emerging growth company | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of NovemberAugust 9, 2017,2022, the number of shares of common stock outstanding was 10,028,763.22,736,494.
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2
PART 1. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
PRECIPIO, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, | |||||||
2017 | December 31, | ||||||
(unaudited) | 2016 | ||||||
ASSETS | |||||||
CURRENT ASSETS: | |||||||
Cash and cash equivalents | $ | 381 | $ | 51 | |||
Accounts receivable, net | 505 | 388 | |||||
Inventories | 99 | 100 | |||||
Other current assets | 127 | 13 | |||||
Total current assets | 1,112 | 552 | |||||
PROPERTY AND EQUIPMENT, NET | 255 | 280 | |||||
OTHER ASSETS: | |||||||
Goodwill | 12,817 | — | |||||
Intangibles, net | 20,779 | — | |||||
Other assets | 14 | 10 | |||||
$ | 34,977 | $ | 842 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | |||||||
CURRENT LIABILITIES: | |||||||
Current maturities of long-term debt | $ | 42 | $ | 395 | |||
Convertible bridge notes, less debt discounts and debt issuance costs | — | 695 | |||||
Accounts payable | 10,034 | 1,084 | |||||
Current maturities of capital leases | 49 | 46 | |||||
Accrued expenses | 1,872 | 700 | |||||
Deferred revenue | 210 | 92 | |||||
Other current liabilities | 1,528 | — | |||||
Total current liabilities | 13,735 | 3,012 | |||||
LONG TERM LIABILITIES: | |||||||
Long-term debt, less current maturities and discounts | — | 4,127 | |||||
Common stock warrant liability | 618 | — | |||||
Capital leases, less current maturities | 126 | 163 | |||||
Other long-term liabilities | 92 | — | |||||
Total liabilities | 14,571 | 7,302 | |||||
STOCKHOLDERS’ EQUITY (DEFICIT): | |||||||
Preferred stock - $0.01 par value, 15,000,000 and 1,294,434 shares authorized at September 30, 2017 and December 31, 2016, respectively, 3,641 and 780,105 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively | — | 8 | |||||
Common stock, $0.01 par value, 150,000,000 and 1,806,850 shares authorized at September 30, 2017 and December 31, 2016, respectively, 9,446,878 and 449,175 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively | 94 | 4 | |||||
Additional paid-in capital | 41,879 | 4,376 | |||||
Accumulated deficit | (21,567 | ) | (10,848 | ) | |||
Total stockholders’ equity (deficit) | 20,406 | (6,460 | ) | ||||
$ | 34,977 | $ | 842 |
| | | | | | |
| | June 30, 2022 | | | ||
|
| (unaudited) |
| December 31, 2021 | ||
ASSETS | | | | | | |
CURRENT ASSETS: | | | | | | |
Cash | | $ | 7,473 | | $ | 11,668 |
Accounts receivable, net | |
| 1,127 | | | 697 |
Inventories | |
| 642 | | | 564 |
Other current assets | |
| 364 | | | 549 |
Total current assets | |
| 9,606 | | | 13,478 |
| | | | | | |
PROPERTY AND EQUIPMENT, NET | |
| 813 | | | 836 |
| | | | | | |
OTHER ASSETS: | | | | | | |
Finance lease right-of-use assets, net | | | 304 | | | 371 |
Operating lease right-of-use assets, net | | | 858 | | | 858 |
Intangibles, net | |
| 14,242 | | | 14,717 |
Other assets | |
| 156 | | | 179 |
Total assets | | $ | 25,979 | | $ | 30,439 |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
CURRENT LIABILITIES: | | | | | | |
Current maturities of long-term debt, less debt issuance costs | | $ | 26 | | $ | 26 |
Current maturities of finance lease liabilities | |
| 177 | | | 222 |
Current maturities of operating lease liabilities | |
| 189 | | | 166 |
Accounts payable | |
| 2,555 | | | 1,863 |
Accrued expenses | |
| 1,434 | | | 1,918 |
Deferred revenue | |
| 13 | | | 18 |
Total current liabilities | |
| 4,394 | | | 4,213 |
LONG TERM LIABILITIES: | | | | | | |
Long-term debt, less current maturities and debt issuance costs | |
| 148 | | | 160 |
Finance lease liabilities, less current maturities | |
| 109 | | | 159 |
Operating lease liabilities, less current maturities | |
| 676 | | | 697 |
Common stock warrant liabilities | |
| 87 | | | 606 |
Total liabilities | |
| 5,414 | | | 5,835 |
COMMITMENTS AND CONTINGENCIES (Note 5) | | | | | | |
STOCKHOLDERS’ EQUITY: | | | | | | |
Preferred stock - $0.01 par value, 15,000,000 shares authorized at June 30, 2022 and December 31, 2021, 47 shares issued and outstanding at June 30, 2022 and December 31, 2021, liquidation preference of $125 at June 30, 2022 | |
| — | | | — |
Common stock, $0.01 par value, 150,000,000 shares authorized at June 30, 2022 and December 31, 2021, 22,708,708 and 22,708,442 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively | |
| 227 | | | 227 |
Additional paid-in capital | |
| 107,114 | | | 104,431 |
Accumulated deficit | |
| (86,828) | | | (80,094) |
Total Precipio, Inc. stockholders’ equity | |
| 20,513 | | | 24,564 |
Noncontrolling interest in joint venture | | | 52 | | | 40 |
Total stockholders’ equity | | | 20,565 | | | 24,604 |
Total liabilities and stockholders’ equity | | $ | 25,979 | | $ | 30,439 |
See notes to unaudited condensed consolidated financial statements.
3
(Dollars in thousands, except per share data)
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
SALES | |||||||||||||||
Patient service revenue, net | $ | 327 | $ | 445 | $ | 946 | $ | 1,716 | |||||||
less provision for bad debts | (57 | ) | (80 | ) | (168 | ) | (309 | ) | |||||||
Net sales | 270 | 365 | 778 | 1,407 | |||||||||||
COST OF DIAGNOSTIC SERVICES | 347 | 231 | 813 | 710 | |||||||||||
Gross profit (loss) | (77 | ) | 134 | (35 | ) | 697 | |||||||||
OPERATING EXPENSES: | |||||||||||||||
Operating expenses | 2,541 | 497 | 3,981 | 1,573 | |||||||||||
Impairment of goodwill | 1,015 | — | 1,015 | — | |||||||||||
TOTAL OPERATING EXPENSES | 3,556 | 497 | 4,996 | 1,573 | |||||||||||
OPERATING LOSS | (3,633 | ) | (363 | ) | (5,031 | ) | (876 | ) | |||||||
OTHER INCOME (EXPENSE): | |||||||||||||||
Interest expense, net | (1,883 | ) | (136 | ) | (2,265 | ) | (378 | ) | |||||||
Warrant revaluation | — | — | (3 | ) | — | ||||||||||
Loss on extinguishment of debt and induced conversion of convertible bridge notes | (1,338 | ) | — | (1,391 | ) | — | |||||||||
Gain on settlement of liability | 647 | — | 647 | — | |||||||||||
Merger advisory fees | (73 | ) | — | (2,676 | ) | — | |||||||||
Other, net | — | — | — | 3 | |||||||||||
(2,647 | ) | (136 | ) | (5,688 | ) | (375 | ) | ||||||||
LOSS BEFORE INCOME TAXES | (6,280 | ) | (499 | ) | (10,719 | ) | (1,251 | ) | |||||||
INCOME TAX EXPENSE | — | — | — | — | |||||||||||
NET LOSS | (6,280 | ) | (499 | ) | (10,719 | ) | (1,251 | ) | |||||||
DEEMED DIVIDENDS ON ISSUANCE OR EXCHANGE OF PREFERRED UNITS | (3,764 | ) | — | (9,012 | ) | (1,422 | ) | ||||||||
PREFERRED DIVIDENDS | (84 | ) | — | (84 | ) | (433 | ) | ||||||||
TOTAL DIVIDENDS | (3,848 | ) | — | (9,096 | ) | (1,855 | ) | ||||||||
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS | $ | (10,128 | ) | $ | (499 | ) | $ | (19,815 | ) | $ | (3,106 | ) | |||
BASIC AND DILUTED LOSS PER COMMON SHARE | $ | (1.36 | ) | $ | (1.15 | ) | $ | (6.96 | ) | $ | (7.23 | ) | |||
BASIC AND DILUTED WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING | 7,430,741 | 435,060 | 2,846,221 | 429,851 |
(unaudited)
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
| 2022 |
| 2021 | | 2022 |
| 2021 | ||||
SALES: | |
|
| |
| | |
|
| |
|
Service revenue, net | $ | 2,226 | | $ | 2,038 | | $ | 4,231 | | $ | 3,982 |
Other revenue |
| 220 | |
| 206 | |
| 742 | |
| 373 |
Revenue, net of contractual allowances and adjustments |
| 2,446 | |
| 2,244 | |
| 4,973 | |
| 4,355 |
Adjustment for allowance for doubtful accounts |
| (87) | |
| 100 | |
| (167) | |
| (187) |
Net sales |
| 2,359 | |
| 2,344 | |
| 4,806 | |
| 4,168 |
COST OF SALES: |
|
| |
|
| |
|
| |
|
|
Cost of service revenue |
| 1,366 | |
| 1,371 | |
| 2,902 | |
| 2,671 |
Cost of other revenue |
| 220 | |
| 222 | |
| 428 | |
| 278 |
Total cost of sales |
| 1,586 | |
| 1,593 | |
| 3,330 | |
| 2,949 |
Gross profit |
| 773 | |
| 751 | |
| 1,476 | |
| 1,219 |
OPERATING EXPENSES: |
|
| |
|
| |
|
| |
|
|
Operating expenses |
| 3,206 | |
| 2,883 | |
| 8,718 | |
| 5,488 |
OPERATING LOSS |
| (2,433) | |
| (2,132) | |
| (7,242) | |
| (4,269) |
OTHER INCOME (EXPENSE): |
|
| |
|
| |
|
| |
|
|
Interest expense, net |
| (2) | |
| (1) | |
| — | |
| (8) |
Warrant revaluation |
| 297 | |
| (894) | |
| 519 | |
| (1,012) |
Gain on settlement of liability |
| – | |
| 17 | |
| 1 | |
| 34 |
Gain on forgiveness of Paycheck Protection Program loan | | – | | | – | | | — | | | 794 |
Total other income (expense) |
| 295 | |
| (878) | |
| 520 | |
| (192) |
LOSS BEFORE INCOME TAXES |
| (2,138) | |
| (3,010) | |
| (6,722) | |
| (4,461) |
INCOME TAX EXPENSE |
| 0 | |
| 0 | |
| 0 | |
| 0 |
NET LOSS |
| (2,138) | |
| (3,010) | |
| (6,722) | |
| (4,461) |
| | | | | | | | | | | |
Less: Net income attributable to noncontrolling interest in joint venture | | (6) | | | (3) | | | (12) | | | (4) |
NET LOSS ATTRIBUTABLE TO PRECIPIO, INC. COMMON STOCKHOLDERS | $ | (2,144) | | $ | (3,013) | | $ | (6,734) | | $ | (4,465) |
| | | | | | | | | | | |
BASIC AND DILUTED LOSS PER COMMON SHARE | $ | (0.09) | | $ | (0.14) | | $ | (0.30) | | $ | (0.23) |
BASIC AND DILUTED WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING |
| 22,708,708 | |
| 21,041,162 | |
| 22,708,648 | |
| 19,461,528 |
See notes to unaudited condensed consolidated financial statements.
4
(Dollars in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended June 30, 2022 | |||||||||||||||||||||||
| | Preferred Stock | | Common Stock | | Additional | | | | | | | | Noncontrolling | | | | ||||||||
| | Outstanding | | Par |
| Outstanding |
| Par | | Paid-in | | Accumulated | | Total | | Interest in | | | | ||||||
|
| Shares |
| Value |
| Shares |
| Value |
| Capital |
| Deficit |
| Precipio, Inc. |
| Joint Venture |
| Total | |||||||
Balance, April 1, 2022 |
| 47 | | $ | — |
| 22,708,708 | | $ | 227 | | $ | 106,663 | | $ | (84,684) | | $ | 22,206 | | $ | 46 | | $ | 22,252 |
Net (loss) income | | — | | | — | | — | | | — | | | — | | | (2,144) | | | (2,144) | | | 6 | | | (2,138) |
Stock-based compensation | | — | |
| — |
| — | |
| — | |
| 451 | |
| — | |
| 451 | |
| — | |
| 451 |
Balance, June 30, 2022 | | 47 | | $ | — | | 22,708,708 | | $ | 227 | | $ | 107,114 | | $ | (86,828) | | $ | 20,513 | | $ | 52 | | $ | 20,565 |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Six Months Ended June 30, 2022 | |||||||||||||||||||||||
| | Preferred Stock | | Common Stock | | Additional | | | | | | | | Noncontrolling | | | | ||||||||
| | Outstanding | | Par |
| Outstanding |
| Par | | Paid-in | | Accumulated | | Total | | Interest in | | | | ||||||
| | Shares |
| Value |
| Shares |
| Value |
| Capital |
| Deficit |
| Precipio, Inc. |
| Joint Venture |
| Total | |||||||
Balance, January 1, 2021 | | 47 | | $ | — |
| 22,708,442 | | $ | 227 | | $ | 104,431 | | $ | (80,094) | | $ | 24,564 | | $ | 40 | | $ | 24,604 |
Net (loss) income |
| — | |
| — |
| — | |
| — | |
| — | |
| (6,734) | |
| (6,734) | |
| 12 | |
| (6,722) |
Proceeds upon issuance of common stock from exercise of warrants | | — | | | — | | 266 | | | — | | | — | | | — | | | — | | | — | | | — |
Stock-based compensation |
| — | |
| — |
| — | |
| — | |
| 2,683 | |
| — | |
| 2,683 | |
| — | |
| 2,683 |
Balance, June 30, 2022 |
| 47 | | $ | — | | 22,708,708 | | $ | 227 | | $ | 107,114 | | $ | (86,828) | | $ | 20,513 | | $ | 52 | | $ | 20,565 |
See notes to unaudited condensed consolidated financial statements
5
PRECIPIO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended June 30, 2021 | |||||||||||||||||||||||
| | Preferred Stock | | Common Stock | | Additional | | | | | | | | Noncontrolling | | | | ||||||||
| | Outstanding | | Par |
| Outstanding |
| Par | | Paid-in | | Accumulated | | Total | | Interest in | | | | ||||||
|
| Shares |
| Value |
| Shares |
| Value |
| Capital |
| Deficit |
| Precipio, Inc. |
| Joint Venture |
| Total | |||||||
Balance, April 1, 2021 | | 47 | | $ | — | | 18,132,063 | | $ | 181 | | $ | 87,365 | | $ | (73,016) | | $ | 14,530 | | $ | 28 | | $ | 14,558 |
Net loss |
| — | |
| — |
| — | |
| — | |
| — | |
| (3,013) | |
| (3,013) | |
| 3 | |
| (3,010) |
Issuance of common stock in connection with at the market offering, net of issuance costs | | — | | | — | | 4,501,000 | | | 45 | | | 14,902 | | | — | | | 14,947 | | | — | | | 14,947 |
Proceeds upon issuance of common stock from exercise of warrants | | — | | | — | | 74,000 | | | 1 | | | 399 | | | — | | | 400 | | | — | | | 400 |
Stock-based compensation |
| — | |
| — |
| — | |
| — | |
| 363 | |
| — | |
| 363 | |
| — | |
| 363 |
Balance, June 30, 2021 |
| 47 | | $ | — |
| 22,707,063 | | $ | 227 | | $ | 103,029 | | $ | (76,029) | | $ | 27,227 | | $ | 31 | | $ | 27,258 |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Six Months Ended June 30, 2021 | |||||||||||||||||||||||
| | Preferred Stock | | Common Stock | | Additional | | | | | | | | Noncontrolling | | | | ||||||||
| | Outstanding | | Par |
| Outstanding |
| Par | | Paid-in | | Accumulated | | Total | | Interest in | | | | ||||||
| | Shares |
| Value |
| Shares |
| Value |
| Capital |
| Deficit |
| Precipio, Inc. |
| Joint Venture |
| Total | |||||||
Balance, January 1, 2021 | | 47 | | $ | — | | 17,576,916 | | $ | 176 | | $ | 85,523 | | $ | (71,564) | | $ | 14,135 | | $ | 27 | | $ | 14,162 |
Net loss |
| — | |
| — |
| — | |
| — | |
| — | |
| (4,465) | |
| (4,465) | |
| 4 | |
| (4,461) |
Issuance of common stock in connection with purchase agreements | | — | | | — | | 500,000 | | | 5 | | | 1,255 | | | — | | | 1,260 | | | — | | | 1,260 |
Issuance of common stock in connection with at the market offering, net of issuance costs | | — | | | — | | 4,501,000 | | | 45 | | | 14,902 | | | — | | | 14,947 | | | — | | | 14,947 |
Proceeds upon issuance of common stock from exercise of warrants | | — | | | — | | 74,000 | | | 1 | | | 399 | | | — | | | 400 | | | — | | | 400 |
Issuance of common stock for consulting services |
| — | |
| — |
| 55,147 | |
| — | |
| 150 | |
| — | |
| 150 | |
| — | |
| 150 |
Stock-based compensation |
| — | |
| — |
| — | |
| — | |
| 800 | |
| — | |
| 800 | |
| — | |
| 800 |
Balance, June 30, 2021 |
| 47 | | $ | — |
| 22,707,063 | | $ | 227 | | $ | 103,029 | | $ | (76,029) | | $ | 27,227 | | $ | 31 | | $ | 27,258 |
See notes to unaudited condensed consolidated financial statements
6
Preferred Stock | Common Stock | ||||||||||||||||||||||||
Outstanding Shares | Par Value | Outstanding Shares | Par Value | Additional Paid-in Capital | Accumulated Deficit | Total | |||||||||||||||||||
Balance, January 1, 2017 | 780,105 | $ | 8 | 449,175 | $ | 4 | $ | 4,376 | $ | (10,848 | ) | $ | (6,460 | ) | |||||||||||
Net loss | — | — | — | — | — | (10,719 | ) | (10,719 | ) | ||||||||||||||||
Conversion of warrants into preferred stock | 8,542 | — | — | — | 25 | — | 25 | ||||||||||||||||||
Conversion of warrants into common stock | — | — | 1,958,166 | 20 | (20 | ) | — | — | |||||||||||||||||
Conversion of preferred stock into common stock | (2,526,425 | ) | (25 | ) | 3,467,666 | 34 | (9 | ) | — | — | |||||||||||||||
Conversion of Senior and Junior debt into preferred stock and common stock | 802,920 | 8 | 1,414,700 | 14 | 4,749 | — | 4,771 | ||||||||||||||||||
Conversion of bridge notes into common stock | — | — | 515,638 | 6 | 2,732 | — | 2,738 | ||||||||||||||||||
Issuance of common stock for consulting services in connection with the merger | — | — | 321,821 | 3 | 2,186 | — | 2,189 | ||||||||||||||||||
Shares issued in connection with business combination | 802,925 | 8 | 1,255,119 | 12 | 20,078 | — | 20,098 | ||||||||||||||||||
Issuance of preferred stock | 135,574 | 1 | — | — | 5,379 | — | 5,380 | ||||||||||||||||||
Issuance of warrants in conjunction with issuance of side agreement | — | — | — | — | 487 | — | 487 | ||||||||||||||||||
Beneficial conversion feature on issuance of bridge notes | — | — | — | — | 1,856 | — | 1,856 | ||||||||||||||||||
Non-cash stock-based compensation and vesting of restricted units | 64,593 | 1 | 40 | — | 41 | ||||||||||||||||||||
Balance, September 30, 2017 | 3,641 | $ | — | 9,446,878 | $ | 94 | $ | 41,879 | $ | (21,567 | ) | $ | 20,406 |
PRECIPIO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
| | | | | | |
| | Six Months Ended June 30, | ||||
|
| 2022 |
| 2021 | ||
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
Net loss | | $ | (6,722) | | $ | (4,461) |
| | | | | | |
Adjustments to reconcile net loss to net cash flows used in operating activities: | |
|
| |
|
|
Depreciation and amortization | |
| 604 | |
| 549 |
Amortization of operating lease right-of-use asset | | | 93 | | | 107 |
Amortization of finance lease right-of-use asset | | | 67 | | | 22 |
Amortization of deferred financing costs, debt discounts and debt premiums | |
| 2 | |
| 2 |
Gain on forgiveness of debt | |
| — | |
| (794) |
Gain on settlement of liability | |
| (1) | |
| (34) |
Stock-based compensation | |
| 2,683 | |
| 800 |
Value of stock issued in payment of services | |
| — | |
| 150 |
Provision for losses on doubtful accounts | |
| 165 | |
| 188 |
Warrant revaluation | |
| (519) | |
| 1,012 |
Derecognition of finance lease right-of-use asset | | | — | | | 29 |
Changes in operating assets and liabilities: | |
|
| |
|
|
Accounts receivable | |
| (595) | |
| 243 |
Inventories | |
| (78) | |
| (206) |
Other assets | |
| 207 | |
| 9 |
Accounts payable | |
| 692 | |
| 81 |
Operating lease liabilities | | | (90) | | | (110) |
Accrued expenses and other liabilities | |
| (488) | |
| (600) |
Net cash used in operating activities | |
| (3,980) | |
| (3,013) |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
|
| |
|
|
Purchase of property and equipment | |
| (106) | |
| (321) |
Net cash used in investing activities | |
| (106) | |
| (321) |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
|
| |
|
|
Principal payments on finance lease obligations | |
| (95) | |
| (37) |
Deposits on finance lease right-of-use assets | | | — | | | (35) |
Issuance of common stock, net of issuance costs | | | — | | | 16,207 |
Proceeds from exercise of warrants | |
| — | |
| 400 |
Principal payments on long-term debt | |
| (14) | |
| (26) |
Payments on common stock warrant liabilities | | | — | | | (130) |
Net cash flows (used in) provided by financing activities | |
| (109) | |
| 16,379 |
NET CHANGE IN CASH | |
| (4,195) | |
| 13,045 |
CASH AT BEGINNING OF PERIOD | |
| 11,668 | |
| 2,656 |
CASH AT END OF PERIOD | | $ | 7,473 | | $ | 15,701 |
| | | | | | |
See notes to unaudited condensed consolidated financial statements.
7
PRECIPIO, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
CASH FLOWS USED IN OPERATING ACTIVITIES: | |||||||
Net loss | $ | (10,719 | ) | $ | (1,251 | ) | |
Adjustments to reconcile net loss to net cash flows used in operating activities: | |||||||
Depreciation and amortization | 395 | 99 | |||||
Amortization of deferred financing costs and debt discount | 1,898 | 31 | |||||
Loss on extinguishment of debt and induced conversion of convertible bridge notes | 1,391 | — | |||||
Gain on settlement of liability | (647 | ) | — | ||||
Stock-based compensation and change in liability of stock appreciation rights | 33 | 9 | |||||
Merger advisory fees | 2,676 | — | |||||
Impairment of goodwill | 1,015 | — | |||||
Provision for losses on doubtful accounts | 168 | 309 | |||||
Capitalized PIK interest on convertible bridge notes | — | 85 | |||||
Warrant revaluation | 3 | — | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | (129 | ) | (314 | ) | |||
Inventories | 15 | (12 | ) | ||||
Other assets | 30 | (27 | ) | ||||
Accounts payable | 484 | 58 | |||||
Accrued expenses and other liabilities | (1,094 | ) | 371 | ||||
Net cash used in operating activities | (4,481 | ) | (642 | ) | |||
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES: | |||||||
Cash acquired in business combination | 101 | — | |||||
Net cash provided by investing activities | 101 | — | |||||
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES: | |||||||
Principal payments on capital lease obligations | (34 | ) | (29 | ) | |||
Issuance of preferred stock | 5,380 | — | |||||
Payment of deferred financing costs | (25 | ) | (10 | ) | |||
Proceeds from exercise of warrants | 25 | — | |||||
Proceeds from long-term debt | 315 | 175 | |||||
Proceeds from convertible bridge notes | 1,365 | 455 | |||||
Principal payments on convertible bridge notes | (1,500 | ) | — | ||||
Principal payments on long-term debt | (816 | ) | (116 | ) | |||
Net cash flows provided by financing activities | 4,710 | 475 | |||||
NET CHANGE IN CASH AND CASH EQUIVALENTS | 330 | (167 | ) | ||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 51 | 235 | |||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 381 | $ | 68 | |||
SUPPLEMENTAL CASH FLOW INFORMATION | |||||||
Cash paid during the period for interest | $ | 65 | $ | 48 | |||
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION | |||||||
Purchases of equipment financed through capital lease | — | 49 | |||||
Preferred unit dividend financed through exchange agreement | — | 433 | |||||
Convertible bridge notes exchanged for long-term debt | — | 680 | |||||
Series A and B preferred exchanged for long-term debt | — | 1,715 | |||||
Conversion of bridges loans plus interest into common stock | 1,787 | — | |||||
Conversion of senior and junior notes plus interest into preferred stock and common stock | 4,771 | — |
(unaudited)
| | | | | | |
| | Six Months Ended June 30, | ||||
| | 2022 |
| 2021 | ||
SUPPLEMENTAL CASH FLOW INFORMATION | | | | | | |
Cash paid during the period for interest | | $ | 19 | | $ | 6 |
| | | | | | |
SUPPLEMENTAL DISCLOSURE OF CONSULTING SERVICES OR ANY OTHER NON-CASH COMMON STOCK RELATED ACTIVITY | |
|
| |
|
|
Purchases of equipment financed through accounts payable | | | 7 | | | 47 |
Operating lease right-of-use assets obtained in exchange for operating lease obligations | | | 92 | | | — |
Finance lease right-of-use assets obtained in exchange for finance lease obligations | | | — | | | 321 |
See notes to unaudited condensed consolidated financial statements.statements.
8
For the Three and NineSix Months Ended SeptemberJune 30, 20172022 and 2016
1. BUSINESS DESCRIPTION
Business Description
Precipio, Inc., and Subsidiary, (“we”its subsidiaries, (collectively, “we”, “us”, “our”, the “Company” or “Precipio”) is a healthcare solutions company focused on cancer diagnostics. The Company’s business mission is to address the pervasive problem of cancer misdiagnoses by developing solutions to mitigate the root causes of this problem in the form of diagnostic products, reagents and services. Misdiagnoses originate from aged commercial diagnostic cancer testing technologies, lack of subspecialized expertise, and sub-optimal laboratory processes that are needed in today’s diagnostic cancer testing in order to provide accurate, rapid, and resource-effective results to treat patients. Industry studies estimate 1 in 5 blood-cancer patients are misdiagnosed. As cancer diagnostic testing has evolved from cellular to molecular (genes and exons), laboratory testing has become extremely complex, requiring even greater diagnostic precision, attention to process and a more appropriate evaluation of the abundance of genetic data to effectively gather, consider, analyze and present information for the physician for patient treatment. Precipio sees cancer diagnostics company providingas requiring a holistic approach to improve diagnostic data for improved interpretations with the intent to reduce misdiagnoses. By delivering diagnostic products, reagents and services that improve the accuracy and efficiency of diagnostics, leading to fewer misdiagnoses, we believe patient outcomes can be improved through the oncology market. Weselection of appropriate therapeutic options. Furthermore, we believe that better patient outcomes will have builta positive impact on healthcare expenses as misdiagnoses are reduced. Better Diagnostic Results – Better Patient Outcome – Lower Healthcare Expenditures.
To deliver its strategy, the Company has structured its organization in order to drive development of diagnostic products. Laboratory 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 laboratoryR&D facilities located in New Haven, Connecticut and have partnered withOmaha, Nebraska house development teams that collaborate on new products and services. The Company operates CLIA laboratories in both the Yale School of Medicine to capture the expertise, experienceNew Haven, Connecticut and technologies developed within academia so that we can provide a better standard ofOmaha, Nebraska locations providing essential blood cancer diagnostics to office-based oncologists in many states nationwide. To deliver on our strategy of mitigating misdiagnoses we rely heavily on our CLIA laboratory to support R&D beta-testing of the products we develop, in a clinical environment.
Our operating structure promotes the harnessing of our proprietary technology and solvegenetic diagnostic expertise to bring to market the growing problemCompany’s robust pipeline of cancer misdiagnosis. We also operateinnovative solutions designed to address the root causes of misdiagnoses.
Joint Venture.
The Company has determined that it holds a research and development facilityvariable interest 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. Launcheda joint venture formed in 2017, the platform facilitates the following relationships:
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 SeptemberFor the six months ended June 30, 2017,2022, the Company had a net loss of $10.7$6.7 million and negativenet cash used in operating activities of $4.0 million. As of June 30, 2022, the Company had an accumulated deficit of $86.8 million and working capital of $12.6$5.2 million. The Company’s ability to continue as a going concern over the next twelve months from the date of issuance of these condensed consolidated financial statements in this Quarterly Report on Form 10-Q is dependent upon a combination of achieving its business plan, including generating additional revenue and avoiding potential business disruption due to the novel coronavirus (“COVID-19”) pandemic, and raising additional financing to meet its debt obligations and paying liabilities arising from normal business operations when they come due.
9
To meet its current and future obligations the Company has taken the following steps to capitalize the business and successfully achieve its business plan:
● | On April 2, 2021, the Company entered into a sales agreement with A.G.P./Alliance Global Partners (“AGP”), pursuant to which the Company may offer and sell its common stock having aggregate sales proceeds of up to $22.0 million, to or through AGP, as sales agent (the “AGP Sales Agreement”). From April 2, 2021 through the date the condensed consolidated financial statements were issued, we have already received approximately $15.5 million in gross proceeds through the AGP Sales Agreement from the sale of 4,565,538 shares of common stock, leaving the Company an additional $6.5 million available for future sales pursuant to the AGP Sales Agreement. |
Notwithstanding the aforementioned circumstances, there remains substantial doubt about the Company’s ability to continue as a going concern.concern for the next twelve months from the date these condensed consolidated financial statements were issued. 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.concern over the next twelve months from the date of issuance of this Quarterly Report Form 10-Q. The accompanying condensed consolidated 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 September 30, 2017 for potential recognition or disclosure in the condensed consolidated financial statementsGAAP and, concluded that, other than what is disclosed in Note 13 - Subsequent Events, there were no other subsequent events that required recognition or disclosure.
The condensed consolidated financial statements include the accounts of Precipio Inc. and ourits wholly owned subsidiary.subsidiaries, and the Joint Venture which is a VIE in which we are the primary beneficiary. Refer to the section titled “Consolidation of Variable Interest Entities” for further information related to our accounting for the Joint Venture. All inter-companyintercompany balances and transactions have been eliminated in consolidation.
Recently Adopted Accounting Pronouncements.
In July 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-05, Lease (Topic 842), “Lessors - Certain Leases with Variable Lease Payments”. This guidance amends the lease classification accounting for lessors for certain leases with variable lease payments that do not depend on a reference index or a rate and would have resulted in the recognition of Estimates.
In May 2021, the FASB issued ASU 2021-04, “Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” which clarifies the accounting for a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after a modification or exchange and the related EPS effects of such transaction if recognized as an adjustment to equity. This ASU becomes effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, and should be applied prospectively to modifications or exchanges occurring on or after the effective date. The Company adopted this
10
guidance on January 1, 2022. The adoption of this standard was not material to our condensed consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted.
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820) (“ASU 2022-03”). The amendments in ASU 2022-03 clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The amendments in this Update also require additional disclosures for equity securities subject to contractual sale restrictions. The provisions in this Update are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company does not expect to early adopt this ASU. The Company is currently assessing the potential impact that the adoption of this ASU will have on its condensed consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06 “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity and improves and amends the related EPS guidance for both Subtopics. The ASU will be effective for annual reporting periods after December 15, 2023 and interim periods within those annual periods and early adoption is permitted in annual reporting periods ending after December 15, 2020. The Company is currently assessing the potential impact that the adoption of this ASU will have on its condensed consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13 “Measurement of Credit Losses on Financial Instruments”, which replaces current methods for evaluating impairment of financial instruments not measured at fair value, including trade accounts receivable and certain debt securities, with a current expected credit loss model. This ASU, as amended, is effective for the Company for reporting periods beginning after December 15, 2022. The Company is currently assessing the potential impact that the adoption of this ASU will have on its condensed consolidated financial statements.
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 4,600,457 and 2,311,399 shares of our common stock have been excluded from the computation of diluted loss per share at June 30, 2022 and 2021, respectively, because the effect is anti-dilutive due to the net loss.
The following table summarizes the outstanding securities not included in the computation of diluted net loss per share:
| | | | |
| | June 30, | ||
|
| 2022 |
| 2021 |
Stock options |
| 3,660,457 |
| 1,361,998 |
Warrants |
| 822,500 |
| 831,901 |
Preferred stock |
| 117,500 |
| 117,500 |
Total |
| 4,600,457 |
| 2,311,399 |
11
Consolidation of Variable Interest Entities.
We evaluate any entity in which we are involved to determine if the entity is a VIE and if so, whether we hold a variable interest and are the primary beneficiary. We consolidate VIEs that are subject to assessment when we are deemed to be the primary beneficiary of the VIE. The process for determining whether we are the primary beneficiary of the VIE is to conclude whether we are a party to the VIE holding a variable interest that meets both of the following criteria: (1) has the power to make estimates and assumptionsdecisions that most significantly affect the reported amountseconomic performance of the VIE, and (2) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE.
We have determined that we hold a variable interest in the Joint Venture, have the power to make significant operational decisions on behalf of the VIE and also have the obligation to absorb the majority of the losses from the VIE. As such we have also determined that we are the primary beneficiary of the VIE. The following table presents information about the carrying value of the assets and liabilities of the Joint Venture which we consolidate and disclosurewhich are included on our condensed consolidated balance sheets. Intercompany balances are eliminated in consolidation and not reflected in the following table.
| | | | | | |
(dollars in thousands) |
| June 30, 2022 |
| December 31, 2021 | ||
Assets: | | | | | | |
Accounts receivable, net | | $ | 224 | | $ | 180 |
Total assets | | $ | 224 | | $ | 180 |
Liabilities: | | | | | | |
Accrued expenses | | $ | 32 | | $ | 36 |
Total liabilities | | $ | 32 | | $ | 36 |
Noncontrolling interest in Joint Venture | | $ | 52 | | $ | 40 |
Total stockholders' equity | | $ | 103 | | $ | 79 |
3. LONG-TERM DEBT
Long-term debt consists of contingentthe following:
| | | | | | |
| | Dollars in Thousands | ||||
|
| June 30, 2022 |
| December 31, 2021 | ||
Department of Economic and Community Development (DECD) | | $ | 191 | | $ | 205 |
DECD debt issuance costs | |
| (17) | |
| (19) |
Total long-term debt | |
| 174 | |
| 186 |
Current portion of long-term debt | |
| (26) | |
| (26) |
Long-term debt, net of current maturities | | $ | 148 | | $ | 160 |
Department of Economic and Community Development.
On January 8, 2018, the Company entered into an agreement with the Connecticut Department of Economic and Community Development (“DECD”) by which the Company received a loan of $300,000 secured by substantially all of the Company’s assets (the “DECD 2018 Loan”). The DECD 2018 Loan is a ten-year loan due on December 31, 2027 and liabilitiesincludes interest paid monthly at the3.25%. The maturity date of the financial statementsDECD 2018 Loan was extended to May 31, 2028 and the reported amounts of net sales and expenses duringmodification did not have a material impact on the reporting period. In addition, estimates and assumptions associated with the determinationCompany’s cash flows.
Amortization of the fair valuedebt issuance costs were $1,000 for the three months ended June 30, 2022 and 2021, respectively, and $2,000 for the six months ended June 30, 2022 and 2021, respectively.
12
4. ACCRUED EXPENSES OTHER CURRENT LIABILITIES.
Accrued expenses at June 30, 2022 and December 31, 2021 are as follows:
| | | | | | |
(dollars in thousands) |
| 2022 |
| 2021 | ||
Accrued expenses | | $ | 745 | | $ | 1,033 |
Accrued compensation | |
| 585 | |
| 718 |
Accrued franchise, property and sales and use taxes | | | 85 | | | 148 |
Accrued interest | |
| 19 | |
| 19 |
| | $ | 1,434 | | $ | 1,918 |
The Company recorded certain assetssettled reductions in accrued expenses and related impairments require considerable judgment by management. Actual results could differ fromaccounts payable as gains which are included in gain on settlement of liability, net in the estimates and assumptions used in preparing these condensed consolidated financial statements.
5. COMMITMENTS AND CONTINGENCIES
The Company is involved in legal proceedings related to matters, which are inherentincidental to its business. Also, the Company is delinquent on the payment of outstanding accounts payable for certain vendors and suppliers who have taken or have threatened to take legal action to collect such outstanding amounts. See below for a discussion on these matters.
LITIGATIONS
CPA Global provides us with certain patent management services. On February 6, 2017, CPA Global claimed that we owed approximately $0.2 million for certain patent maintenance services rendered. CPA Global has not filed claims against us in our day-to-day operationsconnection with this allegation. A liability of less than $0.1 million has been recorded and is reflected in accounts payable within the process of preparing our financial statements. The more significant of those risks are presented below and throughout the notes to the unauditedaccompanying condensed consolidated financial statements.
LEGAL AND REGULATORY ENVIRONMENT
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,requirement, reimbursement for patient services and Medicare and Medicaid fraud
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.
6. LEASES
The Company leases administrative facilities and laboratory equipment through operating lease agreements. In addition we rent various equipment used in our diagnostic lab and in our administrative offices through finance lease arrangements. Our operating leases include both lease (e.g., fixed payments including rent) and non-lease components (e.g., common area or other maintenance costs). The facility leases include 1 or more options to renew, from 1 to 5 years or more. The exercise of lease renewal options is typically at our sole discretion, therefore, the renewals to extend the lease
13
terms are not included in our right-of-use (“ROU”) assets and Cash Equivalentslease liabilities as they are not reasonably certain of exercise. We regularly evaluate the renewal options and, Other Current Assets.
Operating leases result in the recognition of threeROU assets and lease liabilities on the balance sheet. ROU assets represent our right to use the leased asset for the lease term and lease liabilities represent our obligation to make lease payments. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Lease expense is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less. Other current assets asless are not recorded on the balance sheet. The primary leases we enter into with initial terms of September 30, 2017 of $0.1 million includes prepaid assets of12 months or less than $0.1 million and other receivables of less than $0.1 million and consisted of primarily prepaid assets as of Decemberare for equipment. On May 11, 2022, we extended the lease term for our office facility in Omaha, Nebraska by modifying the expiration date from May 31, 2016.
The Company was less thanalso recognizes ROU assets from finance leases in connection with its carry value. While thereHSRR program. For certain customers in the HSRR program, the Company leases diagnostic testing equipment and then subleases the equipment to the customer. Finance lease ROU assets and finance lease liabilities are recognized at the lease commencement date, and at the sublease commencement date the finance lease ROU asset is derecognized and is recorded as cost of sales in the condensed consolidated statements of operations. There were positive qualitative factors discovered during0 derecognized finance lease ROU assets for the qualitative analysis,three and six months ended June 30, 2022. Derecognized finance lease ROU assets for the instabilitythree and six months ended June 30, 2021 were 0 and $0.1 million, respectively. Where Precipio is the lessor, customers lease diagnostic testing equipment from the Company with the transfer of ownership to the customer at the end of the market price of the Company’s common stock and the decline in revenues were significant adverse factors that directed a full assessment. In estimating fair value,lease term at no additional cost. For these contracts, the Company utilizedaccounts for the market capitalization to estimatearrangements as sales-type leases. The lease asset for sales-type leases is the fair value.net investment in leased asset, which is recorded once the finance lease ROU asset is derecognized and a related gain or loss is noted. The impairment test performed by the Company indicated thatnet investment in leased assets was $0.2 million as of June 30, 2022 and December 31, 2021, respectively, and is included in other current assets and other assets in our condensed consolidated balance sheets.
The balance sheet presentation of our operating and finance leases is as follows:
| | | | | | |
(dollars in thousands) | | | | | | |
Classification on the Condensed Consolidated Balance Sheet | | June 30, 2022 | | December 31, 2021 | ||
Assets: | | | | | | |
Operating lease right-of-use assets, net | | $ | 858 | | $ | 858 |
Finance lease right-of-use assets, net (1) | | | 304 | | | 371 |
Total lease assets | | $ | 1,162 | | $ | 1,229 |
| | | | | | |
Liabilities: | | | | | | |
Current: | | | | | | |
Current maturities of operating lease liabilities | | $ | 189 | | $ | 166 |
Current maturities of finance lease liabilities | | | 177 | | | 222 |
Noncurrent: | | | | | | |
Operating lease liabilities, less current maturities | | | 676 | | | 697 |
Finance lease liabilities, less current maturities | | | 109 | | | 159 |
Total lease liabilities | | $ | 1,151 | | $ | 1,244 |
(1) | As of June 30, 2022 and December 31, 2021, finance lease right-of-use assets included $35 and $61, respectively, of assets related to finance leases associated with the HSRR program. |
14
As of June 30, 2022 and December 31, 2021, the estimated fair valuefuture minimum lease payments, excluding non-lease components, are as follows:
| | | | | | | | | | | | | | | | | | |
(dollars in thousands) |
| Operating Leases | | Finance Leases | | Total | ||||||||||||
| | | June 30, | | | December 31, | | | June 30, | | | December 31, | | | June 30, | | | December 31, |
| | | 2022 | | | 2021 | | | 2022 | | | 2021 | | | 2022 | | | 2021 |
2022 | | $ | 124 | | $ | 227 | | $ | 69 | | $ | 176 | | $ | 193 | | $ | 403 |
2023 | |
| 252 | | | 218 | |
| 101 | | | 101 | |
| 353 | |
| 319 |
2024 | |
| 239 | | | 204 | |
| 80 | | | 80 | |
| 319 | |
| 284 |
2025 | |
| 205 | | | 191 | |
| 65 | | | 65 | |
| 270 | |
| 256 |
2026 | | | 195 | | | 195 | | | 26 | | | 26 | | | 221 | | | 221 |
Thereafter | |
| — | | | — | |
| — | | | — | |
| — | |
| — |
Total lease obligations | |
| 1,015 | | | 1,035 | |
| 341 | | | 448 | |
| 1,356 | |
| 1,483 |
Less: Amount representing interest | |
| (150) | | | (172) | |
| (55) | | | (67) | |
| (205) | |
| (239) |
Present value of net minimum lease obligations | |
| 865 | | | 863 | |
| 286 | | | 381 | |
| 1,151 | |
| 1,244 |
Less, current portion | |
| (189) | | | (166) | |
| (177) | | | (222) | |
| (366) | |
| (388) |
Long term portion | | $ | 676 | | $ | 697 | | $ | 109 | | $ | 159 | | $ | 785 | | $ | 856 |
Other information as of June 30, 2022 and December 31, 2021 is as follows:
| | | |
| June 30, | | December 31, |
| 2022 | | 2021 |
Weighted-average remaining lease term (years): | | | |
Operating leases | 4.2 | | 4.7 |
Finance leases | 3.1 | | 3.1 |
Weighted-average discount rate: | | | |
Operating leases | 8.00% | | 8.00% |
Finance leases | 10.15% | | 10.03% |
During the Companysix months ended June 30, 2022 and 2021, operating cash flows from operating leases was less than its carrying amount. As a result of the analysis performed, the Company recorded a goodwill impairment charge of $1.0$0.1 million, respectively, and operating lease ROU assets obtained in exchange for operating lease liabilities was $0.1 million and 0, respectively.
Operating Lease Costs
Operating lease costs were approximately $0.1 million during the three months ended SeptemberJune 30, 2017.
(dollars in thousands) | |||
Legacy Transgenomic common stock | $ | 6,088 | |
Fair value of preferred stock converted to common stock | 49 | ||
Fair value of debt converted to common stock | 2,398 | ||
Fair value of debt converted to preferred stock | 9,796 | ||
Fair value of existing bridge notes | 1,275 | ||
Fair value of warrants | 1,996 | ||
Purchase consideration | $ | 21,602 |
(dollars in thousands) | |||
Current and other assets | $ | 419 | |
Property and equipment | 29 | ||
Goodwill | 13,832 | ||
Other intangible assets(1) | 21,100 | ||
Total assets | 35,380 | ||
Current liabilities | 13,604 | ||
Other liabilities | 174 | ||
Total liabilities | 13,778 | ||
Net assets acquired | $ | 21,602 |
(dollars in thousands) | |||
Acquired technology | $ | 18,990 | |
Customer relationships | 250 | ||
Non-compete agreements | 30 | ||
Trademark and trade name | 40 | ||
Backlog | 200 | ||
In-process research and development | 1,590 | ||
Total intangibles | $ | 21,100 |
Dollars in thousands, except per share amounts | |||||||
Nine months ended September 30, | |||||||
2017 | 2016 | ||||||
Net sales | $ | 1,742 | $ | 2,605 | |||
Net loss available to common stockholders | (22,980 | ) | (15,838 | ) | |||
Loss per common share | $ | (3.40 | ) | $ | (2.48 | ) | |
Dollars in Thousands | |||||||||||
September 30, 2017 | |||||||||||
Cost | Accumulated Amortization | Net Book Value | |||||||||
Technology | $ | 18,990 | $ | 237 | $ | 18,753 | |||||
Customer relationships | 250 | 21 | 229 | ||||||||
Backlog | 200 | 50 | 150 | ||||||||
Covenants not to compete | 30 | 8 | 22 | ||||||||
Trademark | 40 | 5 | 35 | ||||||||
IPR&D | 1,590 | — | 1,590 | ||||||||
$ | 21,100 | $ | 321 | $ | 20,779 |
Dollars in Thousands | ||||||||
September 30, 2017 | December 31, 2016 | |||||||
Senior Notes | $ | — | $ | 3,270 | ||||
Senior Note debt issuance costs | — | (9 | ) | |||||
Junior Notes | — | 584 | ||||||
Connecticut Innovations - line of credit | — | 162 | ||||||
Department of Economic and Community Development (DECD) | — | 243 | ||||||
DECD debt issuance costs | — | (30 | ) | |||||
Webster Bank | — | 328 | ||||||
Webster Bank debt discounts and issuance costs | — | (26 | ) | |||||
Convertible promissory notes | 42 | — | ||||||
Total long-term debt | 42 | 4,522 | ||||||
Current portion of long-term debt | (42 | ) | (395 | ) | ||||
Long-term debt, net of current maturities | $ | — | $ | 4,127 |
Finance Lease Costs
Finance lease amortization 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 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.
September 30, 2017 | December 31, 2016 | |||||||
Accrued expenses | $ | 1,323 | $ | 50 | ||||
Accrued compensation | 529 | 155 | ||||||
Accrued interest | 20 | 495 | ||||||
$ | 1,872 | $ | 700 |
15
7. STOCKHOLDERS’ EQUITY (DEFICIT)
Common Stock.
Pursuant to our Third Amended and Restated Certificate of Incorporation, as amended, we currently have
150,000,000During 2017, restricted stock of zero and 59,563 shares were granted during the three and ninesix months ended SeptemberJune 30, 2017, none of which vested prior to the merger. Upon closing of the merger, all shares fully vested. During 2017, 64,593
During the three months ended SeptemberJune 30, 2017,2021, the Company issued 943,60074,000 shares of its common stock in connection with conversionsthe exercise of 74,000 warrants. The warrant exercises resulted in net cash proceeds to the Company of $0.4 million during the three months ended June 30, 2021
During the six months ended June 30, 2021, the Company issued 55,147 shares of its Series B Preferred Stock (see below - Series B Preferred Stock).
LP 2020 Purchase Agreement
On March 26, 2020, the Company entered into a purchase agreement (the “LP 2020 Purchase Agreement”) with Lincoln Park pursuant to which Lincoln Park has agreed to purchase from us, from time to time, up to $10,000,000 of our common stock, subject to certain limitations, during the 24-month term of the LP 2020 Purchase Agreement.
During the three and Series B Preferred Stock.
At The Market Offering Agreement
On April 2, 2021, the Company entered into a sales agreement with A.G.P./Alliance Global Partners (“AGP”), pursuant to which the Company may offer and sell its common stock, par value $0.01 per share (the “Common Stock”) (the “Shares”), having aggregate sales proceeds of up to $22.0 million. Shares can be sold either directly to or through AGP as a sales agent (the “AGP Sales Agreement”), from time to time, in an “at the market offering” (as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended) of the Shares (the “ATM Offering”). The Company is limited in the number of shares it can sell in the ATM Offering due to the Merger and under Precipio Diagnostics,offering limitations currently applicable to the Company had outstanding preferred unitsunder General Instruction I.B.6. of 367,299 for Series AForm S-3 and 412,806 for Series Bthe Company’s public float as of December 31, 2016. These units have been recapitalizedthe applicable date of such sales, as well as the number of authorized and are includedunissued shares available for issuance, in preferred stock. On the Closing Date, the outstanding preferred units for Series A and Series B, alongaccordance with the related accumulated dividends, were converted into commonterms of the AGP Sales Agreement.
The sale of our shares of Common Stock to or through AGP, will be made pursuant to the registration statement (the “Registration Statement”) on Form S-3 (File No. 333-237445), which was declared effective by the Securities and Exchange Commission (the “SEC”) on April 13, 2020, for an aggregate offering price of up to $50.0 million.
Under the AGP Sales Agreement, Shares may be sold by any method permitted by law deemed to be an “at the market offering.” AGP will also be able to sell shares of Common Stock by any other method permitted by law, including in negotiated transactions with the Company’s prior written consent. Upon delivery of a placement notice and subject to the terms and conditions of the AGP Sales Agreement, AGP is required to use its commercially reasonable efforts consistent with its normal trading and sales practices, applicable state and federal law, rules and regulations, and the rules of The Nasdaq Capital Market to sell the Shares from time to time based upon the Company’s instructions, including any price, time or size limits specified by the Company. AGP is not under any obligation to purchase any of the Shares on a
16
principal basis pursuant to the AGP Sales Agreement, except as otherwise agreed by AGP and the Company in writing and expressly set forth in a placement notice. AGP’s obligations to sell the Shares under the AGP Sales Agreement are subject to satisfaction of certain conditions, including customary closing conditions. The Company is not obligated to make any sales of Shares under the AGP Sales Agreement and any determination by the Company to do so will be dependent, among other things, on market conditions and the Company’s capital raising needs.
The Company has agreed to pay AGP a cash fee of 3.0% of the aggregate gross proceeds from the sale of the Shares on the Company’s behalf pursuant to the AGP Sales Agreement. The AGP Sales Agreement contains representations, warranties and covenants that are customary for transactions of this type. In addition, the Company has provided AGP with customary indemnification and contribution rights. The Company has also agreed to reimburse AGP for certain specified expenses, including the expenses of counsel to AGP. The offering of the Shares pursuant to the AGP Sales Agreement will terminate upon the termination of the AGP Sales Agreement by AGP or the Company, as permitted therein.
During the three and six months ended June 30, 2022, there were 0 sales of shares of common stock through AGP, respectively. During the three and six months ended June 30, 2021, we received net proceeds of approximately $14.9 million, respectively, from the sale of 4,501,000 shares of common stock through AGP, respectively. As of the date of issuance of this Quarterly Report on Form 10-Q, we have received an aggregate of $15.0 million in net proceeds from the sale of common stock through the AGP Sales Agreement, including $0.1 million from the sales of 64,538 shares of common stock through AGP which were sold from July 1, 2022 through the date of issuance of this Quarterly Report on Form 10-Q.
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 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 SeniorB Preferred Stock.
The Company filed a Certificate of Designation with the Secretary of StatePreferences, Rights and Limitations of Series B Convertible Preferred Stock (“Series B Preferred Stock”) with the State of Delaware, on June 29, 2017, designating 4,100,000which designates 6,900 shares of the Company’sour preferred stock as Series B Preferred Stock. The Series B Preferred Stock has a stated value of $1,000 per share and a par value of $0.01 per share, asshare. The Series A Senior ConvertibleB Preferred Stock ("Series A Senior") and establishing theincludes a beneficial ownership blocker but has no dividend 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(except 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.
The conversion price of the Series B Preferred Stock contains a down round feature. As discussed in Note 2 of the accompanying unaudited condensed consolidated financial statements, the Company early adopted ASU 2017-11, which allowed the Company to treat the preferred stock as equity classified, despite the down round provision. The Company will recognize the effect of the down round feature when it is triggered. At that time, the effect would be treated as a deemed dividend and as a reduction of income available to common shareholders in our basic earnings per share calculation.
There were 0 conversions of Series B Preferred Stock during the three and ninesix months ended SeptemberJune 30, 2017, 2,3592022 and 2021, respectively. At June 30, 2022 and December 31, 2021, the Company had 6,900 shares of Series B Preferred Stock were converted into 943,600 shares of our common stock.
17
Common Stock Warrants. The Note Conversion Warrants have an exercise price of $3.00 per share and a five year term. The exercise price contains a down round provision. The conversion of the Company's New Bridge Notes was treated as an induced conversion and at the date of the conversion the Company recorded an expense of approximately $1.0 million which is included in loss on extinguishment of debt and induced conversion of convertible bridge notes in our unaudited condensed consolidated statements of operations (See Note 6 - Convertible Bridge Notes).
The following represents a summary of the warrants outstanding as of SeptemberJune 30, 2017:
| | | | | | | | | |
|
| |
| |
| Underlying |
| Exercise | |
| | Issue Year | | Expiration | | Shares | | Price | |
Warrants | | | | | | | | | |
(1) |
| 2017 |
| August 2022 |
| 24,935 |
| $ | 0.40 |
(2) |
| 2017 |
| August 2022 |
| 4,000 |
| $ | 46.88 |
(3) |
| 2017 |
| August 2022 |
| 47,995 |
| $ | 150.00 |
(3) | | 2017 | | August 2022 | | 9,101 | | $ | 7.50 |
(4) |
| 2017 |
| August 2022 |
| 16,664 |
| $ | 0.40 |
(4) | | 2017 | | August 2022 | | 7,335 | | $ | 0.40 |
(5) |
| 2017 |
| October 2022 |
| 666 |
| $ | 0.40 |
(6) | | 2018 | | October 2022 | | 7,207 | | $ | 112.50 |
(7) | | 2018 | | April 2023 | | 69,964 | | $ | 5.40 |
(7) | | 2018 | | April 2023 | | 78,414 | | $ | 5.40 |
(8) | | 2018 | | October 2022 | | 15,466 | | $ | 11.25 |
(9) | | 2018 | | July 2023 | | 14,671 | | $ | 5.40 |
(9) | | 2018 | | July 2023 | | 14,672 | | $ | 5.40 |
(9) | | 2018 | | August 2023 | | 20,903 | | $ | 5.40 |
(9) | | 2018 | | August 2023 | | 20,903 | | $ | 5.40 |
(9) | | 2018 | | September 2023 | | 19,816 | | $ | 5.40 |
(9) | | 2018 | | September 2023 | | 20,903 | | $ | 5.40 |
(10) | | 2018 | | November 2023 | | 75,788 | | $ | 5.40 |
(10) | | 2018 | | December 2023 | | 51,282 | | $ | 5.40 |
(11) | | 2019 | | April 2024 | | 147,472 | | $ | 5.40 |
(12) | | 2019 | | May 2024 | | 154,343 | | $ | 9.56 |
|
|
|
|
|
| 822,500 |
| |
|
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 | $2.75 | |||
(8) | 2017 | June 2022 | 91,429 | $7.00 | |||
(9) | 2017 | August 2022 | 2,680,000 | $3.00 | |||
(10) | 2017 | August 2022 | 60,000 | $3.125 | |||
(11) | 2017 | August 2022 | 856,446 | $10.00 | |||
(12) | 2017 | August 2022 | 359,999 | $3.00 | |||
4,224,824 |
(1) | These warrants were issued in |
(2) | These warrants were issued in |
(3) |
These warrants were issued in connection with the conversion of our Series A Senior |
(4) | |
These warrants were issued in connection with the conversion of convertible bridge |
(5) | These warrants were issued in connection with the waiver of default the Company received in the fourth quarter of 2017 in connection with the Convertible Promissory Notes. |
(6) | These warrants were issued in connection with certain debt obligation settlement agreements. |
(7) | These warrants were issued in connection with a 2018 securities purchase agreement, as amended, (the “2018 Note Agreement”). |
(8) | These warrants were issued in connection with the 2018 Note Agreement. |
(9) | These warrants were issued in connection with the 2018 Note Agreement. |
(10) | These warrants were issued in connection with the 2018 Note Agreement. |
(11) | These warrants were issued in connection with the 2018 Note Agreement. |
(12) | These warrants were issued in connection with convertible notes issued in May 2019 (the “May 2019 Bridge Notes”). |
During the three months ended June 30, 2022 and 2021, 9,135 and 0 warrants expired, respectively. During the six months ended June 30, 2022 and 2021, 9,135 and 239 warrants expired, respectively. These warrants had been issued in connection with transactions which were completed in 2016 and 2017.
During the six months ended June 30, 2021, 357 warrants were settled for cash of approximately $0.1 million. For further discussion, see the 2016 Warrant Liability in Note 8 – Fair Value.
There were 266 warrants exercised during the six months ended June 30, 2022 for proceeds to the Company of less than $1,000. During the six months ended June 30, 2022, the intrinsic value of the warrants exercised was less than
18
$1,000. There were 74,000 warrants exercised during the six months ended June 30, 2021 for proceeds to the Company of $0.2 million. During the six months ended June 30, 2021, the intrinsic value of the warrants exercised was $0.1 million.
Deemed Dividends
Certain of our preferred stock and Nine Months Ended Septemberwarrant issuances contain down round provisions which require us 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 earnings per share.
There were 0 deemed dividends during the three and six months ended June 30, 20172022 and 2016
8. 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:
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 has a warrant liability related to warrants issued in January 2016 (the “2016 Warrant Liability”) and it represents the fair value of such warrants, of which, 357 warrants were settled for cash of approximately $0.1 million in January 2021. The balance of the 2016 Warrant Liability iswas 0 as of June 30, 2022 and December 31, 2021, respectively.
Bridge Note Warrant Liabilities
During 2018 and 2019, the Company issued warrants in connection with the issuance of convertible notes. All of these warrants issuances were classified as warrant liabilities (the “Bridge Note Warrant Liabilities”).
The Bridge Note Warrant Liabilities are considered a Level 3 financial instrumentinstruments and iswere valued using a binomial lattice simulationthe Black Scholes model. This method is well suited to valuing options with non-standard features. AssumptionsAs of June 30, 2022, Bridge Note Warrant Liabilities outstanding were the result of convertible note issuances on eight different dates in 2018 and inputs2019. The assumptions used in the valuation of the common stock warrants include: our equity value, which was estimated using our stock priceBridge Note Warrant Liabilities include the following ranges: remaining life to maturity of $2.16 as0.3 to 1.9 years; volatility rate of September 30, 2017; volatility of 137%72% to 124%; and a risk-free interest rate of 1.20%1.72% to 2.92%. As of December 31, 2021, assumptions used in the valuation of the Bridge Note Warrant
19
Liabilities include: remaining life to maturity of 0.3 to 2.4 years; volatility rate of 61% to 199%; and risk free rate of 0.06 to 0.73%.
During the three and ninesix months ended SeptemberJune 30, 2017,2022 and 2021, the changeschange in the fair value of the liabilitywarrant liabilities measured using significant unobservable inputs (Level 3) were comprised of the following:
Dollars in Thousands | ||||
For the Three Months Ended | ||||
September 30, 2017 | ||||
Beginning balance at July 1 | $ | 618 | ||
Additions - liability assumed in the Merger | — | |||
Total (gains) or losses: | ||||
Recognized in earnings | — | |||
Balance at September 30 | $ | 618 |
Dollars in Thousands | ||||
For the Nine Months Ended | ||||
September 30, 2017 | ||||
Beginning balance at January 1 | $ | — | ||
Additions - liability assumed in the Merger | 615 | |||
Total (gains) or losses: | ||||
Recognized in earnings | 3 | |||
Balance at September 30 | $ | 618 |
| | | | | | | | | |
Dollars in Thousands | | | |||||||
| | | | | Three Months Ended June 30, 2022 | ||||
|
| |
| Bridge Note |
| Total Warrant | |||
| | | | Warrant Liabilities | | Liabilities | |||
Beginning balance at April 1 | | | | | $ | 384 | | $ | 384 |
Total gains: | |
| | |
|
| |
|
|
Revaluation recognized in earnings | | | | | | (297) | | | (297) |
Balance at June 30 | | | | | $ | 87 | | $ | 87 |
| | | | | | | | | |
| | | | | Three Months Ended June 30, 2021 | ||||
|
| |
| Bridge Note |
| Total Warrant | |||
| | | | Warrant Liabilities | | Liabilities | |||
Beginning balance at April 1 | | | | | $ | 1,313 | | $ | 1,313 |
Total losses: | | | | |
|
| |
|
|
Revaluation recognized in earnings | | | | | | 894 | | | 894 |
Deductions – warrant liability settlement | | | | |
| – | |
| – |
Balance at June 30 | | | | | $ | 2,207 | | $ | 2,207 |
| | | | | | | | | |
Dollars in Thousands | | | |||||||
| | | | | Six Months Ended June 30, 2022 | ||||
| | | | Bridge Note | | Total Warrant | |||
|
| |
| Warrant Liabilities |
| Liabilities | |||
Beginning balance at January 1 | | | | | $ | 606 | | $ | 606 |
Total losses: | | | | |
|
| |
|
|
Revaluation recognized in earnings | | | | | | (519) | | | (519) |
Deductions – warrant exercises and write-offs | | | | | | – | | | – |
Balance at June 30 | | | | | $ | 87 | | $ | 87 |
| | | | | | | | | |
| | Six Months Ended June 30, 2021 | |||||||
| | 2016 Warrant | | Bridge Note | | Total Warrant | |||
|
| Liability |
| Warrant Liabilities |
| Liabilities | |||
Beginning balance at January 1 | | $ | 130 | | $ | 1,195 | | $ | 1,325 |
Total losses: | |
|
| |
|
| |
|
|
Revaluation recognized in earnings | | | – | | | 1,012 | | | 1,012 |
Deductions – warrant liability settlement | | | (130) | | | – | | | (130) |
Balance at June 30 | | $ | – | | $ | 2,207 | | $ | 2,207 |
9. EQUITY INCENTIVE PLAN
The Company's 2006 Equity Incentive Plan (the "2006 Plan") was terminated as to futureCompany currently issues stock awards on July 12, 2016. The Company'sunder its 2017 Stock Option and Incentive Plan, as amended (the "2017 Plan"“2017 Plan”) was adopted by the Company's stockholders on June 5, 2017 andwhich will expire on June 5, 2027. The shares authorized for issuance under the 2017 Plan were 3,852,853 at June 30, 2022, of which 191,097 were available for future grant. The shares authorized under the 2017 Plan are subject to annual increases on January 1 by 5% of the number of shares of common stock issued and outstanding on the
20
immediately preceding December 31, or such lessor number of shares determined by the Company’s Board of Directors or Compensation Committee. During the six months ended June 30, 2022, the shares authorized for issuance increased by 1,135,422 shares.
Stock Options.
The Company accounts for all stock-based compensation payments to employees and directors, including grants of employee stock options, at fair value at the date of grant and expenses the benefit in operating expense in the condensed consolidated statements of operations over the service period of the awards. The Company records the expense for stock-based compensation awards subject to performance-based milestone vesting over the remaining service period when management determines that achievement of the milestone is probable based on the expected satisfaction of the performance conditions as of the reporting date. The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option pricing model, which requires various assumptions including estimating stock price volatility, expected life of the stock option, risk free interest rate and estimated forfeiture rate.
During the six months ended June 30, 2022, the Company granted stock options to purchase up to 1,074,000 shares of common stock at a weighted average exercise price of $1.51 per share. These awards have vesting periods of up to four years and had a weighted average grant date fair value of $1.45. The fair value calculation of options granted during the six months ended June 30, 2022 used the follow assumptions: risk free interest rates of 1.60% to 3.55%, based on the U.S. Treasury yield in effect at the time of grant; expected life of six years; and volatility of 166% based on historical volatility of the Company’s common stock over a time that is consistent with the expected life of the option.
The following table summarizes stock option activity under our plans during the ninesix months ended SeptemberJune 30, 2017:
Number of Options | Weighted-Average Exercise Price | |||||
Outstanding at January 1, 2017 | 24,600 | $ | 107.83 | |||
Granted | 225,332 | 1.87 | ||||
Forfeited | (13,044 | ) | 103.13 | |||
Outstanding at September 30, 2017 | 236,888 | $ | 7.30 | |||
Exercisable at September 30, 2017 | 10,284 | $ | 121.97 |
| | | | | |
|
| Number of |
| Weighted-Average | |
| | Options | | Exercise Price | |
Outstanding at January 1, 2022 |
| 2,635,287 | | $ | 3.38 |
Granted |
| 1,074,000 | |
| 1.51 |
Forfeited |
| (48,830) | |
| 2.44 |
Outstanding at June 30, 2022 |
| 3,660,457 | | $ | 2.85 |
Exercisable at June 30, 2022 |
| 1,605,306 | | $ | 3.46 |
As of SeptemberJune 30, 2017,2022, there were 236,5903,119,917 options that were vested or expected to vest with an0 aggregate intrinsic value of approximately one hundred thousand withand a remaining weighted average contractual life of 9.98.7 years. The weighted-average grant date fair values, based on
During the Black-Scholes option model, ofsix months ended June 30, 2021, there were 325,050 options granted with a weighted average exercise price of $2.13 per share and 24,147 options forfeited with a weighted average exercise price of $5.04 per share.
Based on Company policy, stock options will become 100% vested in the event of an employee retirement, with retirement defined as someone who has attained the age of 65 and has served as an employee for the three-year period immediately preceding the retirement date. In connection with the retirement of a former employee in March 2022, the Company accelerated the vesting of shares of previously unvested stock options pursuant to the terms of certain Company stock option agreements previously issued between March 2019 and January 2022. During the six months ended June 30, 2022, the Company accelerated 481,637 shares of previously unvested stock options and recorded $1.1 million of non-cash stock-based compensation expense for the accelerated awards. The Company also extended the remaining contractual term of all outstanding stock options of the former employee as of the retirement date. The Company determined this to be a modification of the stock options which would result in incremental fair value. Management calculated the change in fair value due to the modification to be a non-cash stock-based compensation expense of $0.5 million which is included within operating expense in the accompanying statements of operations during the ninesix months ended SeptemberJune 30, 2017 was $1.63.
For the three and ninesix months ended both SeptemberJune 30, 20172022, we recorded non-cash stock-based compensation expense for all stock awards of $0.5 million and 2016,$2.7 million, respectively, within operating expense in the accompanying statements of operations. For the three and six months ended June 30, 2021, we recorded compensation expense for all stock awards
21
of $0.4 million and $0.8 million, respectively, within operating expense.expense in the accompanying statements of operation. As of SeptemberJune 30, 2017,2022, the unrecognized compensation expense related to unvested stock awards was $0.4$4.2 million, which is expected to be recognized over a weighted-average period of 3.82.8 years.
10. SALES SERVICE REVENUE, NET AND ACCOUNTS RECEIVABLE
ASC Topic 606, “Revenue from contracts with customers”
The Company follows the guidance of September 30, 2017, zero SARs shares were outstanding. DuringASC 606 for the nine months ended September 30, 2017, the SARs liability decreased approximately $1,000recognition of revenue from contracts with customers to transfer goods and at September 30, 2017, no liability was recorded in accrued expenses since there were no shares outstanding.
Step 1: Identification of the contract with the customer. Sub-steps include determining the customer in a contract, initial contract identification and determining if multiple contracts should be combined and accounted for as a single transaction.
Step 2: Identify the performance obligation in the contract. Sub-steps include identifying the promised goods and services in the contract and identifying which performance obligations within the contract are distinct.
Step 3: Determine the transaction price. Sub-steps include variable consideration, constraining estimates of variable consideration, the existence of a significant financing component in the contract, noncash consideration and consideration payable vendors (the “Creditors”) pursuant to which the Creditors agreed to a reductioncustomer.
Step 4: Allocate transaction price. Sub-steps include assessing the amount of approximately $5.0 million in currently due vendor liabilities. The Company and the Creditors agreed to restructure these liabilities into approximately $2.5 million in secured, long-term vendor obligations with payments beginning in July 2018 and continuing over 48 months. In connection with the settlement, the Company agreed to issue to certain of the Creditors warrants (the “Creditor Warrants”) to purchase approximately 86,000 shares of the Company’s common stock at an exercise price of $7.50 per share.
Step 5: Satisfaction of performance obligations. Sub-steps include ascertaining the point in time when an asset is transferred to the customer and when the customer obtains control of the asset upon which time the Company recognizes revenue.
Nature of Contracts and Customers
The Company’s contracts and related performance obligations are similar for its customers and the sales process for all customers starts upon the receipt of requisition forms from the customers for patient diagnostic testing and the execution of contracts for biomarker testing and clinical research. Payment terms for the benefitservices provided are 30 days, unless separately negotiated.
Diagnostic testing
Control of the Creditors,laboratory testing services is transferred to the customer at a security interestpoint in certain propertytime. As such, the Company recognizes revenue for laboratory testing services at a point in time based on the delivery method (web-portal access or fax) for the patient’s laboratory report, per the contract.
Clinical research grants
Control of the clinical research services are transferred to the customer over time. The Company will recognize revenue utilizing the “effort based” method, measuring its progress toward complete satisfaction of the performance obligation.
Biomarker testing and clinical project services
Control of the biomarker testing and clinical project services are transferred to secure its obligations under the Settlement Agreement.customer over time. The Company utilizes an “effort based” method of assessing performance and measures progress towards satisfaction of the performance obligation based upon the delivery of results.
22
The Creditor Warrants haveCompany generates revenue from the provision of diagnostic testing provided to patients, biomarker testing provided to bio-pharma customers and clinical research grants funded by both bio-pharma customers and government health programs.
Reagents and other diagnostic products
Control of reagents and other diagnostic products are transferred to the customer at a per share exercise price of $7.50, are exercisablepoint in time and, as such, the Company recognizes these revenues at a point in time based on the delivery method. These revenues include revenues from reagent sets for our HSRR program, COVID-19 antibody tests and other product sales and are included in other revenue in our condensed consolidated statements of operations.
Equipment leasing
The Company accounts for sales-type leases within the scope of ASC 842, Leases, as ASC 606 specifically excludes leases from its guidance. The sales-type leases result in the derecognition of the underlying asset, the recognition of profit or loss on the sale, and the recognition of an investment in leased asset. Revenue from sales-type leases is recognized upfront on the commencement date of issuancethe lease and will expire five yearsis included in other revenue in our condensed consolidated statements of operations. For the three ended June 30, 2022 and 2021, revenue from sales-type leases was 0, respectively. For the six ended June 30, 2022 and 2021, revenue from sales-type leases was 0 and less than $0.1 million, respectively.
Disaggregation of Revenues by Transaction Type
We operate in 1 business segment and, therefore, the results of our operations are reported on a consolidated basis for purposes of segment reporting, consistent with internal management reporting. Service revenue, net for the three and six months ended June 30, 2022 and 2021 was as follows:
| | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended June 30, | ||||||||||||||||
(dollars in thousands) | | Diagnostic Testing | | Biomarker Testing | | Total | ||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
Medicaid | | $ | 12 | | $ | 18 | | $ | — | | $ | — | | $ | 12 | | $ | 18 |
Medicare | |
| 1,076 | |
| 1,009 | |
| — | |
| — | |
| 1,076 | |
| 1,009 |
Self-pay | |
| 48 | |
| 69 | |
| — | |
| — | |
| 48 | |
| 69 |
Third party payers | |
| 1,090 | |
| 921 | |
| — | |
| — | |
| 1,090 | |
| 921 |
Contract diagnostics | |
| — | |
| — | |
| — | |
| 21 | |
| — | |
| 21 |
Service revenue, net | | $ | 2,226 | | $ | 2,017 | | $ | — | | $ | 21 | | $ | 2,226 | | $ | 2,038 |
| | | | | | | | | | | | | | | | | | |
| | For the Six Months Ended June 30, | ||||||||||||||||
(dollars in thousands) | | Diagnostic Testing | | Biomarker Testing | | Total | ||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
Medicaid | | $ | 27 | | $ | 31 | | $ | — | | $ | — | | $ | 27 | | $ | 31 |
Medicare | |
| 2,050 | |
| 1,993 | |
| — | |
| — | |
| 2,050 | |
| 1,993 |
Self-pay | |
| 97 | |
| 116 | |
| — | |
| — | |
| 97 | |
| 116 |
Third party payers | |
| 2,057 | |
| 1,821 | |
| — | |
| — | |
| 2,057 | |
| 1,821 |
Contract diagnostics | |
| — | |
| — | |
| — | |
| 21 | |
| — | |
| 21 |
Service revenue, net | | $ | 4,231 | | $ | 3,961 | | $ | — | | $ | 21 | | $ | 4,231 | | $ | 3,982 |
Revenue from the date of issuance.
23
Revenue Recognition
Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price using the expected value $0.01 per share (the “Series C Preferred Stock”method based on historical experience. The Company does not typically enter arrangements where multiple contracts can be combined as the terms regarding services are generally found within a single agreement/requisition form. The Company derives its revenues from the following types of transactions: diagnostic testing (“Diagnostic”), convertible intorevenues from the Company’s ICP technology and bio-pharma projects encompassing genetic diagnostics (collectively “Biomarker”), revenues from clinical research grants from state and federal research programs and diagnostic product sales, including revenues from equipment leases and reagent sales associated with our HSRR program.
Deferred revenue
Deferred revenue, or unearned revenue, refers to advance payments for products or services that are to be delivered in the future. The Company records such prepayment of unearned revenue as a numberliability, as revenue that has not yet been earned, but represents products or services that are owed to a customer. As the product or service is delivered over time, the Company recognizes the appropriate amount of sharesrevenue from deferred revenue. For the period ended June 30, 2022 and December 31, 2021, the deferred revenue was $13,000 and $18,000, respectively.
Contractual Allowances and Adjustments
We are reimbursed by payers for services we provide. Payments for services covered by payers average less than billed charges. We monitor revenue and receivables from payers and record an estimated contractual allowance for certain revenue and receivable balances as of the Company’s common stock equalrevenue recognition date to $1,000 dividedproperly account for anticipated differences between amounts estimated in our billing system and amounts ultimately reimbursed by $1.40payers. Accordingly, the total revenue and warrantsreceivables reported in our condensed consolidated financial statements are recorded at the amounts expected to purchase up to 1,962,857 sharesbe received from these payers. For service revenue, the contractual allowance is estimated based on several criteria, including unbilled claims, historical trends based on actual claims paid, current contract and reimbursement terms and changes in customer base and payer/product mix. The billing functions for the remaining portion of common stock withour revenue are contracted and fixed fees for specific services and are recorded without an exercise price of $1.63 per share (the “Warrants”) at a combined offering price of $1,000 per unit, in a registered direct offering (the “Series C Preferred Offering”)allowance for contractual discounts. The Series C Preferred Stock includesfollowing table presents our revenues initially recognized for each associated payer class during the three and six months ended June 30, 2022 and 2021.
| | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended June 30, | ||||||||||||||||
(dollars in thousands) | | | | Contractual Allowances and | | Revenues, net of Contractual | ||||||||||||
| | Gross Revenues | | adjustments | | Allowances and adjustments | ||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
Medicaid | | $ | 12 | | $ | 18 | | $ | — | | $ | — | | $ | 12 | | $ | 18 |
Medicare | |
| 1,076 | |
| 1,009 | |
| — | |
| — | |
| 1,076 | |
| 1,009 |
Self-pay | |
| 48 | |
| 69 | |
| — | |
| — | |
| 48 | |
| 69 |
Third party payers | |
| 3,793 | |
| 3,225 | |
| (2,703) | |
| (2,304) | |
| 1,090 | |
| 921 |
Contract diagnostics | |
| — | |
| 21 | |
| — | |
| — | |
| — | |
| 21 |
| |
| 4,929 | |
| 4,342 | |
| (2,703) | |
| (2,304) | |
| 2,226 | |
| 2,038 |
Other | |
| 220 | |
| 206 | |
| — | |
| — | |
| 220 | |
| 206 |
| | $ | 5,149 | | $ | 4,548 | | $ | (2,703) | | $ | (2,304) | | $ | 2,446 | | $ | 2,244 |
24
| | | | | | | | | | | | | | | | | | |
| | For the Six Months Ended June 30, | ||||||||||||||||
(dollars in thousands) | | | | Contractual Allowances and | | Revenues, net of Contractual | ||||||||||||
| | Gross Revenues | | adjustments | | Allowances and adjustments | ||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
Medicaid | | $ | 27 | | $ | 31 | | $ | — | | $ | — | | $ | 27 | | $ | 31 |
Medicare | |
| 2,050 | |
| 1,993 | |
| — | |
| — | |
| 2,050 | |
| 1,993 |
Self-pay | |
| 97 | |
| 116 | |
| — | |
| — | |
| 97 | |
| 116 |
Third party payers | |
| 7,178 | |
| 6,357 | |
| (5,121) | |
| (4,536) | |
| 2,057 | |
| 1,821 |
Contract diagnostics | |
| – | |
| 21 | |
| — | |
| — | |
| — | |
| 21 |
| |
| 9,352 | |
| 8,518 | |
| (5,121) | |
| (4,536) | |
| 4,231 | |
| 3,982 |
Other | |
| 742 | |
| 373 | |
| — | |
| — | |
| 742 | |
| 373 |
| | $ | 10,094 | | $ | 8,891 | | $ | (5,121) | | $ | (4,536) | | $ | 4,973 | | $ | 4,355 |
Allowance for Doubtful Accounts
The Company provides for a beneficial ownership blocker butgeneral allowance for collectability of services when recording net sales. The Company has no dividend rights (exceptadopted the policy of recognizing net sales to the extent dividends are also paid onit expects to collect that amount. Reference is made to FASB 954-605-45-5 and ASU 2011-07, Health Care Entities: Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debt, and the common stock).Allowance for Doubtful Accounts. The securities comprisingchange in the units are immediately separable and were issued separately.
| | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended June 30, | ||||||||||||||||
| | Revenues, net of | | | |
| ||||||||||||
(dollars in thousands) | | Contractual Allowances | | Allowances for doubtful | |
| ||||||||||||
| | and adjustments | | accounts | | Total | ||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
Medicaid | | $ | 12 | | $ | 18 | | $ | (6) | | $ | 10 | | $ | 6 | | $ | 28 |
Medicare | |
| 1,076 | |
| 1,009 | |
| (27) | |
| 110 | |
| 1,049 | |
| 1,119 |
Self-pay | |
| 48 | |
| 69 | |
| — | |
| — | |
| 48 | |
| 69 |
Third party payers | |
| 1,090 | |
| 921 | |
| (54) | |
| (20) | |
| 1,036 | |
| 901 |
Contract diagnostics | |
| — | |
| 21 | |
| — | |
| — | |
| — | |
| 21 |
| |
| 2,226 | |
| 2,038 | |
| (87) | |
| 100 | |
| 2,139 | |
| 2,138 |
Other | |
| 220 | |
| 206 | |
| — | |
| — | |
| 220 | |
| 206 |
| | $ | 2,446 | | $ | 2,244 | | $ | (87) | | $ | 100 | | $ | 2,359 | | $ | 2,344 |
| | | | | | | | | | | | | | | | | | |
| | For the Six Months Ended June 30, | ||||||||||||||||
| | Revenues, net of | | | |
| ||||||||||||
(dollars in thousands) | | Contractual Allowances | | Allowances for doubtful | |
| ||||||||||||
| | and adjustments | | accounts | | Total | ||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
Medicaid | | $ | 27 | | $ | 31 | | $ | (13) | | $ | 1 | | $ | 14 | | $ | 32 |
Medicare | |
| 2,050 | |
| 1,993 | |
| (51) | |
| 11 | |
| 1,999 | |
| 2,004 |
Self-pay | |
| 97 | |
| 116 | |
| — | |
| — | |
| 97 | |
| 116 |
Third party payers | |
| 2,057 | |
| 1,821 | |
| (103) | |
| (199) | |
| 1,954 | |
| 1,622 |
Contract diagnostics | |
| — | |
| 21 | |
| — | |
| — | |
| — | |
| 21 |
| |
| 4,231 | |
| 3,982 | |
| (167) | |
| (187) | |
| 4,064 | |
| 3,795 |
Other | |
| 742 | |
| 373 | |
| — | |
| — | |
| 742 | |
| 373 |
| | $ | 4,973 | | $ | 4,355 | | $ | (167) | | $ | (187) | | $ | 4,806 | | $ | 4,168 |
25
Costs to Obtain or Fulfill a Customer Contract
Sales commissions are expensed when incurred because the amortization period would have been one year or less. These costs are recorded in operating expenses payable byin the condensed consolidated statements of operations.
Shipping and handling costs are comprised of inbound and outbound freight and associated labor. The Company accounts for shipping and assuming no exercisehandling activities related to contracts with customers as fulfillment costs which are included in cost of sales in the condensed consolidated statements of operations.
Accounts Receivable
The Company has provided an allowance for potential credit losses, which has been determined based on management’s industry experience. The Company grants credit without collateral to its patients, most of who are insured under third party payer agreements.
The following summarizes the mix of receivables outstanding related to payer categories:
| | | | | | |
(dollars in thousands) |
| June 30, 2022 |
| December 31, 2021 | ||
Medicaid | | $ | 38 | | $ | 45 |
Medicare | |
| 1,051 | |
| 727 |
Self-pay | |
| 212 | |
| 139 |
Third party payers | |
| 1,683 | |
| 2,111 |
Contract diagnostic services and other | |
| 256 | |
| 159 |
| | $ | 3,240 | | $ | 3,181 |
Less allowance for doubtful accounts | |
| (2,113) | |
| (2,484) |
Accounts receivable, net | | $ | 1,127 | | $ | 697 |
The following table presents the roll-forward of the Warrants, were $2,748,000. The Company expects to useallowance for doubtful accounts for the net proceeds ofsix months ended June 30, 2022.
| | | | | | |
|
| | |
| Allowance for | |
| | | | | Doubtful | |
(dollars in thousands) | | | | | Accounts | |
Balance, January 1, 2022 |
| |
| | $ | (2,484) |
Collection Allowance: |
| |
| |
|
|
Medicaid | | $ | (13) | |
|
|
Medicare | |
| (51) | |
|
|
Third party payers | |
| (103) | |
|
|
| |
| (167) | |
|
|
Bad debt expense | | $ | 2 | |
|
|
Total charges | |
|
| |
| (165) |
Other | | | | | | 536 |
Balance, June 30, 2022 | |
|
| | $ | (2,113) |
For the offeringsix months ended June 30, 2022, the allowance for general corporate purposes, including, but not limited to, growth of the Company’s sales force and business development team, progression of the Company’s product development and working capital. The offering closed on November 9, 2017.
26
Customer Revenue and Accounts Receivable Concentration
Our customers are oncologists, hospitals, reference laboratories, physician-office laboratories, and pharma and biotech companies. Customers that accounted for 10% or greater of our net sales or accounts receivable for the identified periods is as follows:
| | | | | | | | | | | | | | | |
| | Net sales | | | Accounts receivable, as of | | |||||||||
| | Three Months Ended | | | Six Months Ended | | | | | ||||||
| | June 30, | | | June 30, | | | June 30, | | December 31, | | ||||
| | 2022 | | 2021 | | | 2022 | | 2021 | | | 2022 | | 2021 | |
| | | | | | | | | | | | | | | |
Customer A | | * | | * | | | * | | * | | | 13 | % | 21 | % |
Customer B | | * | | * | | | * | | * | | | 10 | % | * | |
Customer C | | * | | 10 | % | | * | | * | | | * | | 12 | % |
| | | | | | | | | | | | | | | |
* represents less than 10% | | | | | | | | | | | | | | | |
11. SUBSEQUENT EVENTS
The Company has evaluated events and transactions subsequent to June 30, 2022 through the date the condensed consolidated financial statements were issued and there are no other events to report other than what has been disclosed in the condensed consolidated financial statements.
27
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Information
This Quarterly Report on Form 10-Q, including this Management’s Discussion and Analysis, contains forward-looking statements. These statements are based on management’s current views, assumptions or beliefs of future events and financial performance and are subject to uncertainty and changes in circumstances. Readers of this report should understand that these statements are not guarantees of performance or results. Many factors could affect our actual financial results and cause them to vary materially from the expectations contained in the forward-looking statements. These factors include, among other things: our expected revenue, income (loss), receivables, operating expenses, supplier pricing, availability and prices of raw materials, insurance reimbursements, product pricing, sources of funding operations and acquisitions, our ability to raise funds, sufficiency of available liquidity, the impact of inflation on our business, results of operations, or financial condition, the potential impact of COVID-19 and precautionary measures that may be implemented or continued for an uncertain period of time, future interest costs, future economic circumstances, business strategy, industry conditions, our ability to execute our operating plans, the success of our cost savings initiatives, competitive environment and related market conditions, expected financial and other benefits from our organizational restructuring activities, geopolitical uncertainties with the ongoing Russia and Ukraine conflict, actions of governments and regulatory factors affecting our business, retaining key employees and other risks as described in our reports filed with the Securities and Exchange Commission. In some cases these statements are identifiable through the use of words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would” or the negative versions of these terms and other similar expressions.
You are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Actual results may differ materially from those suggested by the forward-looking statements that we make for a number of reasons, including those described in Part II, Item 1A, “Risk Factors,” of this Quarterly Report on Form 10-Q.
We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
The following discussion should be read together with our condensed consolidated financial statements and related notes contained in this Quarterly Report on Form 10-Q and with the audited financial statements, related notes and notes thereto of Precipio DiagnosticsManagement’s Discussion and Analysis included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 contained in our current report on Form 8-K/A,2021, which we filed with the Securities and Exchange Commission (the
Overview
We are a healthcare solutions company focused on cancer diagnostics. Our business mission is to address the pervasive problem of cancer misdiagnoses by developing solutions to mitigate the root causes of this problem in the form of diagnostic products, reagents and services. Misdiagnoses originate from aged commercial diagnostic cancer testing technologies, lack of subspecialized expertise, and sub-optimal laboratory processes that are needed in today’s diagnostic cancer testing in order to provide accurate, rapid, and resource-effective results to treat patients. Industry studies estimate 1 in 5 blood-cancer patients are misdiagnosed. As cancer diagnostic testing has evolved from cellular to molecular (genes and exons), laboratory testing has become extremely complex, requiring even greater diagnostic precision, attention to process and a more appropriate evaluation of the abundance of genetic data to effectively gather, consider, analyze and present information for the physician for patient treatment. Precipio sees cancer diagnostics as requiring a holistic approach to improve diagnostic data for improved interpretations with the intent to reduce misdiagnoses. By delivering diagnostic products, reagents and services that improve the accuracy and efficiency of diagnostics, leading to fewer misdiagnoses, we believe patient outcomes can be improved through the selection of appropriate therapeutic options.
Furthermore, we believe that better patient outcomes will have a positive impact on healthcare expenses as misdiagnoses are reduced. Better Diagnostic Results – Better Patient Outcome – Lower Healthcare Expenditures.
To deliver its strategy, the Company (then known as Transgenomic, Inc., or Transgenomic), completed a reverse merger, or the Merger, with Precipio Diagnostics, LLC, a privately held Delaware limited liability company, or Precipio Diagnostics,has structured its organization in accordance with the termsorder to drive development of the Agreementdiagnostic products. Laboratory 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 Diagnostics 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 Diagnostics, with Precipio Diagnostics surviving the Merger as a wholly-owned subsidiary of the merged company. In connection with the Merger, the Company changed its name from Transgenomic, Inc. to Precipio, Inc. 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.
In April 2020, we formed a Joint Venture with Poplar. Poplar provides specialized laboratory testing services to a nationwide client base of gastroenterologists, dermatologists, oncologists, urologists, gynecologists and their patients. The business purpose of the Joint Venture is to facilitate and capitalize on the combined capabilities, resources and healthcare industry relationships of its members by partnering, promoting and providing oncology services to office-based physicians, hospitals and medical centers. Under the terms of the Joint Venture, Precipio SPV has a 49% ownership interest in the Joint Venture, with Poplar having a 51 % ownership. We have partnered with the Yale School of Medicine to capture the expertise, experience and technologies developed within academia sodetermined that we can providehold a better standardvariable interest in the Joint Venture and that we are the primary beneficiary 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, or ICP, the patented technology which was exclusively licensed by us from Dana-Farber Cancer Institute, Inc., or Dana-Farber, at Harvard University. 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:
Dollars in Thousands | ||||||||||||||
Three Months Ended | ||||||||||||||
September 30, | Change | |||||||||||||
2017 | 2016 | $ | % | |||||||||||
Total Net Sales | $ | 270 | $ | 365 | $ | (95 | ) | (26 | )% |
Dollars in Thousands | |||||||||||||
Three Months Ended | |||||||||||||
September 30, | Margin % | ||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||
Gross (Loss) Profit | $ | (77 | ) | $ | 134 | (29 | )% | 35 | % |
Dollars in Thousands | ||||||||||||||
Nine Months Ended | ||||||||||||||
September 30, | Change | |||||||||||||
2017 | 2016 | $ | % | |||||||||||
Total Net Sales | $ | 778 | $ | 1,407 | $ | (629 | ) | (45 | )% |
Dollars in Thousands | |||||||||||||
Nine Months Ended | |||||||||||||
September 30, | Margin % | ||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||
Gross (Loss) Profit | $ | (35 | ) | $ | 697 | (5 | )% | 49 | % |
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 wethe Company will realize ourits assets and discharge ourits liabilities in the ordinary course of business. We haveThe Company has incurred substantial operating losses and havehas used cash in ourits operating activities for the past several years. As of SeptemberFor the six months ended June 30, 2017, we2022, the Company had a net loss of $10.7$6.7 million and negativenet cash used in operating activities of $4.0 million. As of June 30, 2022, the Company had an accumulated deficit of $86.8 million and working capital of $12.6$5.2 million. OurThe Company’s ability to continue as a going concern over the next twelve months from the date the condensed consolidated financial statements were issued is dependent upon a combination of achieving ourits business plan, including generating additional revenue, and raising additional financing to meet ourits debt obligations and paying liabilities arising from normal business operations when they come due.
To meet ourits current and future obligations we havethe Company has taken the following steps to capitalize the business and successfully achieve ourits business plan:
● | On April 2, 2021, the Company entered into a sales agreement with A.G.P./Alliance Global Partners (“AGP”), pursuant to which the Company may offer and sell its common stock having aggregate sales proceeds of up to $22.0 million, to or through AGP, as sales agent (the “AGP Sales Agreement”). From April 2, 2021 through the date the condensed consolidated financial statements were issued, we have already received approximately $15.5 million in gross proceeds through the AGP Sales Agreement from the sale of 4,565,538 shares of common stock, leaving the Company an additional $6.5 million available for future sales pursuant to the AGP Sales Agreement. |
Dollars in Thousands | |||||||||||
September 30, 2017 | December 31, 2016 | Change | |||||||||
Current assets (including cash and cash equivalents of $381 and $51, respectively) | $ | 1,112 | $ | 552 | $ | 560 | |||||
Current liabilities | 13,735 | 3,012 | 10,723 | ||||||||
Working capital | $ | (12,623 | ) | $ | (2,460 | ) | $ | (10,163 | ) |
Notwithstanding the aforementioned circumstances, there remains substantial doubt about ourthe Company’s ability to continue as a going concern.concern over the next twelve months from the date of issuance of this Quarterly Report on Form 10-Q. There can be no assurance that wethe Company will be able to successfully achieve ourits initiatives summarized above in order to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared assuming wethe Company will continue as a going concern and do not include any adjustments that might result should wethe Company be unable to continue as a going concern as a result of the outcome of this uncertainty.
29
Outlook - COVID-19 related
The COVID-19 outbreak, which spread worldwide in the first quarter of 2020, has caused significant business disruption. The extent of the impact of the ongoing COVID-19 pandemic on the Company’s operational and financial performance will depend on future developments. While our laboratory operations resumed to near-normal capacity, we may continue to experience challenges in procuring materials and supplies in a consistently timely manner due to COVID-19-related supply chain issues. In addition, delays in the development of COVID-19 vaccines or the deployment of vaccines which are approved or otherwise authorized for emergency use, a recurrence or “subsequent waves” of COVID-19 cases, or the discovery of vaccine-resistant COVID-19 variants could cause other widespread or more severe impacts. We have been actively monitoring the COVID-19 situation and its impact on the global economy and the Company. As the global pandemic evolves, we will continue to monitor the extent to which COVID-19 impacts our revenues, expenses and liquidity.
Results of Operations for the Three Months Ended June 30, 2022 and 2021
Net Sales. Net sales were as follows:
| | | | | | | | | | | | |
| | Dollars in Thousands |
| |||||||||
| | Three Months Ended | | | | |||||||
| | June 30, | | Change |
| |||||||
|
| 2022 |
| 2021 |
| $ |
| % |
| |||
Service revenue, net, less allowance for doubtful accounts | | $ | 2,139 | | $ | 2,138 | | $ | 1 | | - | % |
Other | |
| 220 | |
| 206 | | | 14 | | 7 | % |
Net Sales | | $ | 2,359 | | $ | 2,344 | | $ | 15 | | 1 | % |
Net sales for the three months ended June 30, 2022 were approximately $2.4 million, an increase of less than $0.1 million as compared to the same period in 2021. During the three months ended June 30, 2022, despite the fact that we had a decrease in cases processed, patient diagnostic service revenue increased less than $0.1 million as compared to the same period in 2021 due better reimbursement rates for the billed tests partially offset by a larger allowance for doubtful accounts recorded during the three months ended June 30, 2022 as compared to the prior year period. We processed 1,009 cases during the three months ended June 30, 2022 as compared to 1,168 cases during the same period in 2021, or a 14% decrease in cases. Other revenue increased by less than $0.1 million for the three months ended June 30, 2022 as compared to the same period in 2021. The other revenues were primarily related to our HSRR program.
Cost of Sales. Cost of sales includes material and supply costs for the patient tests performed, costs related to HSRR products and other direct costs (primarily personnel costs, pathologist interpretation costs and rent) associated with the operations of our laboratory. Cost of sales decreased by less than $0.1 million for the three months ended June 30, 2022 as compared to the same period in 2021. The decrease was in line with the change in revenues discussed above.
Gross Profit. Gross profit and gross margins were as follows:
| | | | | | | | | | | |
|
| Dollars in Thousands |
| ||||||||
| | Six Months Ended | | | | ||||||
| | June 30, | | Margin % |
| ||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||
Gross Profit | | $ | 773 | | $ | 751 |
| 33 | | 32 | % |
Gross margin was 33% of total net sales, for the three months ended June 30, 2022, as compared to 32% of total net sales for the same period in 2021. Gross profit was approximately $0.8 million during the three months ended June 30, 2022 and 2021, respectively. We operate a fully staffed CLIA and CAP certified clinical pathology and molecular laboratory. As such, it is necessary to maintain appropriate staffing levels to provide industry standard laboratory processing and reporting to ordering physicians. An increase in case volume will enable our laboratory to yield economies of scale and to leverage fixed expenses. We anticipate case volume to increase during the remainder of 2022 and for our costs per case to improve as additional economies of scale are possible.
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Operating Expenses. Operating expenses primarily consist of personnel costs, professional fees, travel costs, facility costs, stock-based compensation costs and depreciation and amortization. Our operating expenses increased by $0.3 million to $3.2 million for the three months ended June 30, 2022 as compared to the same period in 2021. The increase included an increase of $0.1 million in sales and marketing expenses due to increased personnel costs, $0.1 million in research and development expenses due to increased operating supplies and $0.1 million in stock-based compensation expenses for the three months ended June 30, 2022 as compared to the prior year.
Other (Expense) Income. We recorded net other income of $0.3 million for the three months ended June 30, 2022 and net other expense of $0.9 million for the three months ended June 30, 2021. The amount for both periods is primarily attributable to non-cash income and expense recorded on warrant revaluations.
Results of Operations for the Six Months Ended June 30, 2022 and 2021
Net Sales. Net sales were as follows:
| | | | | | | | | | | | |
| | Dollars in Thousands | | |||||||||
| | Six Months Ended | | | | |||||||
| | June 30, | | Change | | |||||||
|
| 2022 |
| 2021 |
| $ |
| % |
| |||
Service revenue, net, less allowance for doubtful accounts | | $ | 4,064 | | $ | 3,795 | | $ | 269 | | 7 | % |
Other | |
| 742 | |
| 373 | | | 369 | | 99 | % |
Net Sales | | $ | 4,806 | | $ | 4,168 | | $ | 638 | | 15 | % |
Net sales for the six months ended June 30, 2022 were approximately $4.8 million, an increase of $0.6 million as compared to the same period in 2021. During the six months ended June 30, 2022, despite the fact that we had a decrease in cases processed, patient diagnostic service revenue increased $0.3 million as compared to the same period in 2021 due better reimbursement rates achieved for the tests billed in the current year. We processed 2,006 cases during the six months ended June 30, 2022 as compared to 2,251 cases during the same period in 2021, or an 11% decrease in cases. Other revenue increased $0.3 million for the six months ended June 30, 2022 as compared to the same period in 2021. The increase is the result of a $0.4 million increase in revenues related to our HSRR program, partially offset by a $0.1 million decrease in other miscellaneous revenues.
Cost of Sales. Cost of sales includes material and supply costs for the patient tests performed, costs related to HSRR products and other direct costs (primarily personnel costs, pathologist interpretation costs and rent) associated with the operations of our laboratory. Cost of sales increased $0.3 million for the six months ended June 30, 2022 as compared to the same period in 2021. The increase included increases in costs related to both service revenues and other revenues and was in line with the increase revenues discussed above.
Gross Profit. Gross profit and gross margins were as follows:
| | | | | | | | | | | |
| | Dollars in Thousands | | ||||||||
| | Six Months Ended | |
| | ||||||
| | June 30, | | Margin % | | ||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | | ||
Gross Profit | | $ | 1,476 | | | 1,219 |
| 31 | % | 29 | % |
Gross margin was 31% of total net sales, for the six months ended June 30, 2022, as compared to 29% of total net sales for the same period in 2021. Gross profit was approximately $1.5 million and $1.2 million during the six months ended June 30, 2022 and 2021, respectively. An increase in case volume will enable our laboratory to yield economies of scale and to leverage fixed expenses. We anticipate case volume to increase during the remainder of 2022 and for our costs per case to improve as additional economies of scale are possible.
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Operating Expenses. Operating expenses primarily consist of personnel costs, professional fees, travel costs, facility costs, stock-based compensation costs and depreciation and amortization. Our operating expenses increased by $3.2 million to $8.7 million for the six months ended June 30, 2022 as compared to the same period in 2021. The increase included the following: an increase of $0.7 million in general and administrative expenses due to a $0.3 million increase in personnel costs and a $0.4 million increase in legal fees; an increase of $0.3 million in sales and marketing expenses due primarily to increased personnel costs; an increase of $0.3 million in research and development expenses due to a $0.1 million increase in personnel costs, a $0.1 million increase in operating supplies and a $0.1 million increase in other expenses; and, a $1.9 million increase in stock-based compensation expenses for the six months ended June 30, 2022 as compared to the prior year.
Other (Expense) Income. We recorded net other income of $0.5 million for the six months ended June 30, 2022 and net other expense of $0.2 million for the six months ended June 30, 2021. The other income for the six months ended June 30, 2022 is attributable to non-cash income recorded on warrant revaluations. The other expense for the six months ended June 30, 2021 includes $1.0 million of expense from warrant revaluations partially offset by $0.8 million of a gain on forgiveness of debt related to the forgiveness of our Paycheck Protection Program Loan.
Liquidity and Capital Resources
Our working capital positions were as follows:
| | | | | | | | | |
| | Dollars in Thousands | |||||||
|
| June 30, 2022 |
| December 31, 2021 |
| Change | |||
Current assets (including cash of $7,473 and $11,668 respectively) | | $ | 9,606 | | $ | 13,478 | | $ | (3,872) |
Current liabilities | |
| 4,394 | |
| 4,213 | |
| 181 |
Working capital | | $ | 5,212 | | $ | 9,265 | | $ | (4,053) |
Analysis of Cash Flows - Nine– Six Months Ended SeptemberJune 30, 20172022 and 2016
Net Change in Cash.Cash decreased by $4.2 million and Cash Equivalents.
Cash Flows Used in Operating Activities.
The cash flows used in operating activities ofCash Flows Used In Investing Activities. Cash flows used in operating activities in the first nine months of 2016 included the net loss of $1.3 million and an increase in accounts receivable of $0.3 million. These were partially offset by an increase in accounts payable, accrued expenses and other liabilities of $0.5 million and non-cash adjustments of $0.5 million.
Cash Flows Used in or Provided by Financing Activities. Cash flows used by financing activities totaled $0.1 million for the ninesix months ended SeptemberJune 30, 2017 was cash acquired as part2022, which included payments on our long-term debt and finance lease obligations of the merger transaction.
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June 30, 2017, 2021, which included proceeds of $0.3$16.2 million from the issuance of senior notes, $1.4common stock and $0.4 million from the issuance of convertible notes and $5.4 million from the issuance of preferred stock.warrant exercises. These proceeds were partially offset by payments on our long-term debt and finance lease obligations of $0.8 million, payments on our convertible bridge notes of $1.5less than $0.1 million and payments of capital lease obligations and deferred financing costson common stock warrant liabilities of $0.1 million. Cash flows provided by financing activities during
For further information regarding the nine months ended September 30, 2016Company’s future funding requirements, see the Going Concern disclosure in Note 1 of the Notes to Unaudited Condensed Consolidated Financial Statements included proceeds of $0.6 million from the issuance of convertible notes and other debt partially offset by $0.1 million of paymentswith this Quarterly Report on our debt, capital lease obligations and for deferred financing costs.
Off-Balance Sheet Arrangements
At each of
Contractual Obligations and Commitments
No significant changes to unaudited condensed consolidated financial statements for additional information regarding our contractual obligations and commitments
Critical Accounting Policies and Estimates
Accounting policies used in the preparation of our financial statements may involve the use of management judgments and estimates. Certain of our accounting policies are considered critical as they are both important to the portrayal of our financial statements and require significant or complex judgments on the part of management. Our judgments and estimates are based on experience and assumptions that we believe are reasonable under the circumstances. Further, we evaluate our judgments and estimates from time to time as circumstances change. Actual financial results based on judgments or estimates may vary under different assumptions or circumstances. For additional information regarding ourOur critical accounting policies are discussed in our Annual Report on Form 10-K for the fiscal year ended December31, 2021, filed with the Securities and estimates, seeExchange Commission on March 30, 2022.
Recently Issued Accounting Pronouncements
See the accompanying unaudited condensed consolidated financial statements and Note 2 - “Summary of Significant Accounting Policies” in the Notes to unaudited condensed consolidated Financial Statements and Note 1 of 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.
Impact of Inflation
Inflation generally affects us with increased cost of labor and operating supplies. We do not believe that price inflation or deflation had a material adverse effect on our financial condition or results of operations during the periods presented.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company, as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information required under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, management performed, with the participation of our Chief Executive Officer and Interim Chief Financial Officer, evaluatedan evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of September 30, 2017. Our management recognizes that neither our disclosure controls and procedures nor our internal controls over financial reporting will prevent all fraud and material error.the Securities Exchange Act of 1934,
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as amended (the “Exchange Act”). Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”), and that such information is accumulated and communicated to management including our Chief Executive Officer and our Interim Chief Financial Officer, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving our objectives. Further, the design of adesired control system must reflect the fact that there are resource constraints,objectives, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls and procedures can provide absolute assurance that all control issues and instances of fraud, if any, within the Companya company have been detected. The designManagement is required to apply its judgment in evaluating the cost-benefit relationship of any system ofpossible controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.procedures. Based on the evaluation, of our disclosure controls and procedures as of September 30, 2017, ourthe Chief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures are notwere effective at a reasonable assurance level.
Changes in Internal Control over Financial Reporting
We have evaluated the changes in our internal control over financial reporting that occurred during the three months ended SeptemberJune 30, 20172022 and concluded that there have not been any changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Item 1. Legal Proceedings
The healthcare industry is subject to numerous laws and regulations of federal, state and local governments. These laws and regulations include, but are not limited to, matters such as licensure, accreditation, government healthcare program 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 accompanying unaudited condensed consolidated financial statementsimposition of significant fines and Note 8 - “Contingencies”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 Notes to unaudited condensed consolidatedsame reporting period for amounts in excess of management’s expectations, our financial statements for additional information regardingsuch reporting period could be materially adversely affected. In general, the resolution of a legal proceedings.
The Company is involved in legal proceedings related to matters, which are incidental to its business and is delinquent on the payment of outstanding accounts payable for certain vendors and suppliers who have taken or have threatened to take legal action to collect such outstanding amounts. See below for a discussion on these matters.
CPA Global provides us with certain patent management services. On February 6, 2017, CPA Global claimed that we owed 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 less than $0.1 million has been recorded and is reflected in accounts payable within the accompanying condensed consolidated balance sheets at June 30, 2022 and December 31, 2021.
Item 1A. Risk Factors
As disclosed in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, there are a number of risks and uncertainties that may have a material effect on the operating results of our business and our financial condition. The following information updates, and should be read in conjunction with, the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016,2021, which could materially affect our business, financial condition or future results. The risks described in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K as updated in our Quarterly Report for the quarter ended June 30, 2017 and this Quarterly Report, are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.
We have incurred losses since our inception and expect to incur losses for the foreseeable future. We cannot be certain that we will achieve or sustain profitability.
We have incurred losses since our inception and expect to incur losses in the future. As of September 30, 2017 and December 31, 2016, we have an accumulated total deficit of approximately $21.5 million and $10.8 million, respectively. For the ninesix months ended SeptemberJune 30, 2017 and the fiscal year ended December 31, 2016,2022, we had a net loss and comprehensive loss attributable to common stockholders of approximately $19.8$6.7 million and $4.1 million, respectively.had net cash used in operating activities of $4.0 million. As of June 30, 2022, we had working capital of $5.2. To date, we have experienced negative cash flow from development of our diagnostic technology, as well as from the costs associated with establishing a laboratory and building a sales force to market our products and services. We expect to incur substantial net losses for the foreseeable future to further develop and commercialize our diagnostic technology. We also expect that our selling, general and administrative expenses will
35
continue to increase due to the additional costs associated with market development activities and expanding our staff to sell and support our products. Our ability to achieve or, if achieved, sustain profitability is based on numerous factors, many of which are beyond our control, including the market acceptance of our products, competitive product development and our market penetration and margins. We may never be able to generate sufficient revenue to achieve or, if achieved, sustain profitability.
Because of the numerous risks and uncertainties associated with further development and commercialization of our diagnostic technology and any future tests, we are unable to predict the extent of any future losses or when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our securities. An investor in our securities must carefully consider the substantial challenges, risks and uncertainties inherent in the development and commercialization of tests in the medical diagnostic industry. We may never successfully commercialize our diagnostic technology or any future tests, and our business may fail.
We willmay need to raise substantial additional capital to commercialize our diagnostic technology, and our failure to obtain funding when needed may force us to delay, reduce or eliminate our product development programs or collaboration efforts or force us to restrict or cease operations.
As of SeptemberJune 30, 2017,2022, our cash balance was $0.4$7.5 million and our working capital was approximately negative $12.6$5.2 million. Due to our recurring losses from operations and the expectation that we will continue to incur losses in the future, we willmay be required to raise additional capital to complete the development and commercialization of our current product candidates and to pay off our obligations. To date, to fund our operations and develop and commercialize our products, we have relied primarily on equity and debt financings. WhenIn future periods, when we seek additional capital, we may seek to sell additional equity and/or debt securities or to obtain a credit facility, which we may not be able to do on favorable terms, or at all. Our ability to obtain additional financing will be subject to a number of factors, including market conditions, our operating performance and investor sentiment. If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly delay, scale back or discontinue the development and/or commercialization of one or more of our product candidates, restrict or cease our operations or obtain funds by entering into agreements on unattractive terms.
We will needface risks related to health pandemics and other widespread outbreaks of contagious disease, including COVID-19, which could significantly disrupt our operations and impact our financial results.
The ongoing COVID-19 pandemic is evolving, continues to spread globally, and to date has led to the implementation of various responses, including government-imposed quarantines, closure of non-essential business, work-from-home directives, travel restrictions, physical distancing, shelter-in-place orders and other public health safety measures. Despite recent progress in the administration of vaccines, both the outbreak of recent variants, including Delta and Omicron, and the related containment and mitigation measures that have been put into place across the globe, have had an adverse impact on the global economy and our business, the severity and duration of which are uncertain. The COVID-19 pandemic continues to have a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services may be slow to return to pre-pandemic levels, if they return to pre-pandemic levels. In response to the COVID-19 pandemic, many of our employees are continuing to work remotely outside of our offices. Additionally, while our laboratory operations resumed to near-normal capacity, we may continue to experience challenges in procuring materials and supplies in a consistently timely manner due to COVID-19-related supply chain issues. The demand for COVID-19 vaccines and potential for manufacturing facilities and materials to be commandeered under the Defense Production Act of 1950, or equivalent foreign legislation, may make it more difficult to obtain stockholder approvalmaterials or manufacturing. If any of our third-party manufacturers is adversely impacted by the shares issuedCOVID-19 pandemic or if they divert resources or manufacturing capacity to accommodate the development or manufacture of COVID-19 coronavirus vaccines, our supply chain may be disrupted, limiting our ability to produce our diagnostic tests.
Going forward, we expect that challenges to our business will continue. We have been and issuablewill continue to be prudent in managing through this economic crisis. Digital connectivity is now fundamental to the continuity of our November 2017 registered direct offering beforebusiness operations. We continually engage our employees and customers in keeping safe. We monitor adherence to
36
governmental guidelines. We have employed remote work where possible. In this unchartered time, we can raise additional capital.
Inflation may continue to rise and increase our operating costs.
Over the twelve months ended June 2022, the US Bureau of Designation prohibits usLabor and Statistics reported that inflation increased 9.1 percent as against prices from issuing anyJune 2021. This represents the largest 12-month advance since 1981. Rising inflation has the potential to adversely affect our liquidity, business, financial condition and results of operations by increasing our overall cost structure. Although we may take measures to mitigate the impact of this inflation, if these measures are not effective, our business, financial condition, results of operations and liquidity could be materially adversely affected. Even if such measures are effective, there could be a difference between the timing of when these beneficial actions impact our results of operations and when the cost inflation is incurred.
Recent volatility in capital markets and lower market prices for our securities may affect our ability to access new capital through sales of shares of our common stock or issuance of indebtedness, which may harm our liquidity, limit our ability to grow our business, or improve our operating infrastructure and restrict our ability to compete in our markets.
Our operations consume substantial amounts of cash, and we intend to continue to make significant investments to support our business growth, respond to business challenges or opportunities, develop new solutions, retain or expand our current levels of personnel, improve our existing solutions, and enhance our operating infrastructure. Our future capital requirements may be significantly different from our current estimates and will depend on many factors, including the need to:
● | finance unanticipated working capital requirements; |
● | develop or enhance our technological infrastructure and our existing solutions; |
● | pursue acquisitions or other strategic relationships; and |
● | respond to competitive pressures. |
Accordingly, we may need to pursue equity or debt financings to meet our capital needs. With uncertainty in the capital markets and other factors, such financing may not be available on terms favorable to us or at all. If we raise additional funds through further issuances of equity or convertible debt securities, convertible or exercisable into common stock at a price per share below the then effective conversion priceour existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our Series C Preferred Stock, subject to certain
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
(a) | Exhibits |
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31.1 | | |||
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31.2 | | |||
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32.1* | | |||
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32.2* | | |||
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101.INS | | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||
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101.SCH | | Inline XBRL Taxonomy Extension Schema Document | ||
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101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||
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101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||
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101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | ||
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101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||
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104 | | Cover Page Interactive Data File – formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101. | ||
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* This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Registrant specifically incorporates it by reference
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| PRECIPIO, INC. | ||
| | | |
Date: August 11, 2022 | By: | /S/ ILAN DANIELI | |
| | Ilan Danieli | |
| | ||
Chief Executive Officer (Principal Executive | |||
| | | |
| | | |
Date: August 11, 2022 | By: | / | |
| | Matthew Gage | |
| | Interim Chief Financial Officer (Principal Financial and Accounting Officer) | |
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