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 September 30, ~~2022~~2023

	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 ☒ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes ☒ No ◻

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 ☐ No ☒

As of November ~~8, 2022,~~9, 2023, the number of shares of common stock outstanding was ~~22,820,260.~~1,420,125.

Table of Contents

PRECIPIO, INC. AND SUBSIDIARIES

INDEX

		Page No.

PART I.	Financial Information	3

Item 1.	Condensed Consolidated Financial Statements	3

	Condensed Consolidated Balance Sheets at September 30, ~~2022~~2023 (unaudited) and December 31, ~~2021~~2022	3

	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, ~~2022~~2023 and ~~2021~~2022 (unaudited)	4

	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, ~~2022~~2023 and ~~2021~~2022 (unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2022~~2023 and ~~2021~~2022 (unaudited)	7

	Notes to ~~the~~ Unaudited Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34

Item 4.	Controls and Procedures	34

PART II.	Other Information	35

Item 1.	Legal Proceedings	35

Item 1A.	Risk Factors	35

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 3.	Defaults Upon Senior Securities	39

Item 4.	Mine Safety Disclosures	39

Item 5.	Other Information	39

Item 6.	Exhibits	3940

Signatures		4041

Table of Contents

PART 1. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

PRECIPIO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

September 30, 2022

(unaudited)

December 31, 2021
ASSETS

CURRENT ASSETS:

Cash

$
5,144

$
11,668
Accounts receivable, net

955

697
Inventories

663

564
Other current assets

656

549
Total current assets

7,418

13,478

PROPERTY AND EQUIPMENT, NET

885

836

OTHER ASSETS:

Finance lease right-of-use assets, net

284

371
Operating lease right-of-use assets, net

811

858
Intangibles, net

14,005

14,717
Other assets

144

179
Total assets

$
23,547

$
30,439
LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Current maturities of long-term debt, less debt issuance costs

$
367

$
26
Current maturities of finance lease liabilities

168

222
Current maturities of operating lease liabilities

194

166
Accounts payable

2,132

1,863
Accrued expenses

1,536

1,918
Deferred revenue

13

18
Total current liabilities

4,410

4,213
LONG TERM LIABILITIES:

Long-term debt, less current maturities and debt issuance costs

141

160
Finance lease liabilities, less current maturities

89

159
Operating lease liabilities, less current maturities

625

697
Common stock warrant liabilities

28

606
Total liabilities

5,293

5,835
COMMITMENTS AND CONTINGENCIES (Note 5)

STOCKHOLDERS’ EQUITY:

Preferred stock - $0.01 par value, 15,000,000 shares authorized at September 30, 2022 and December 31, 2021, 47 shares issued and outstanding at September 30, 2022 and December 31, 2021, liquidation preference of $94 at September 30, 2022

—

—
Common stock, $0.01 par value, 150,000,000 shares authorized at September 30, 2022 and December 31, 2021, 22,820,260 and 22,708,442 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

228

227
Additional paid-in capital

107,975

104,431
Accumulated deficit

(90,007)

(80,094)
Total Precipio, Inc. stockholders’ equity

18,196

24,564
Noncontrolling interest in joint venture

58

40
Total stockholders’ equity

18,254

24,604
Total liabilities and stockholders’ equity

$
23,547

$
30,439


		September 30, 2023
		(unaudited)		December 31, 2022
ASSETS
CURRENT ASSETS:
Cash		$	1,562	$	3,445
Accounts receivable, net			1,483		1,036
Inventories			636		708
Other current assets			628		521
Total current assets			4,309		5,710

PROPERTY AND EQUIPMENT, NET			738		877

OTHER ASSETS:
Finance lease right-of-use assets, net			194		257
Operating lease right-of-use assets, net			668		763
Intangibles, net			13,056		13,768
Other assets			88		129
Total assets		$	19,053	$	21,504
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt, less debt issuance costs		$	334	$	255
Current maturities of finance lease liabilities			143		162
Current maturities of operating lease liabilities			222		199
Accounts payable			2,513		2,042
Accrued expenses			2,213		1,584
Deferred revenue			29		119
Total current liabilities			5,454		4,361
LONG TERM LIABILITIES:
Long-term debt, less current maturities and debt issuance costs			113		134
Finance lease liabilities, less current maturities			25		68
Operating lease liabilities, less current maturities			459		574
Total liabilities			6,051		5,137
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS’ EQUITY:
Preferred stock - $0.01 par value, 15,000,000 shares authorized at September 30, 2023 and December 31, 2022, 47 shares issued and outstanding at September 30, 2023 and December 31, 2022, liquidation preference of $33 at September 30, 2023			—		—
Common stock, $0.01 par value, 150,000,000 shares authorized at September 30, 2023 and December 31, 2022, 1,380,555 and 1,141,013 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively	(1)		14		11
Additional paid-in capital	(1)		111,998		108,588
Accumulated deficit			(99,075)		(92,297)
Total Precipio, Inc. stockholders’ equity			12,937		16,302
Noncontrolling interest in joint venture			65		65
Total stockholders’ equity			13,002		16,367
Total liabilities and stockholders’ equity		$	19,053	$	21,504

(1) The common stock and additional paid-in capital for all periods presented reflect the one-for-twenty reverse stock split, which was effected on September 21, 2023.

See notes to unaudited condensed consolidated financial statements.

Table of Contents

PRECIPIO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

(unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021
SALES:








Service revenue, net
$
2,060

$
1,998

$
6,291

$
5,980
Other revenue

235

141

977

514
Revenue, net of contractual allowances and adjustments

2,295

2,139

7,268

6,494
Adjustment for allowance for doubtful accounts

(80)

107

(247)

(80)
Net sales

2,215

2,246

7,021

6,414
COST OF SALES:








Cost of service revenue

1,512

1,450

4,414

4,121
Cost of other revenue

267

268

695

546
Total cost of sales

1,779

1,718

5,109

4,667
Gross profit

436

528

1,912

1,747
OPERATING EXPENSES:








Operating expenses

3,665

2,967

12,383

8,455
OPERATING LOSS

(3,229)

(2,439)

(10,471)

(6,708)
OTHER INCOME (EXPENSE):








Interest expense, net

(6)

(6)

(6)

(14)
Warrant revaluation

59

578

578

(434)
Gain on settlement of liability

3

13

4

47
Gain on forgiveness of Paycheck Protection Program loan

–

–

—

794
Total other income (expense)

56

585

576

393
LOSS BEFORE INCOME TAXES

(3,173)

(1,854)

(9,895)

(6,315)
INCOME TAX EXPENSE

–

–

—

—
NET LOSS

(3,173)

(1,854)

(9,895)

(6,315)

Less: Net income attributable to noncontrolling interest in joint venture

(6)

(6)

(18)

(10)
NET LOSS ATTRIBUTABLE TO PRECIPIO, INC. COMMON STOCKHOLDERS
$
(3,179)

$
(1,860)

$
(9,913)

$
(6,325)

BASIC AND DILUTED LOSS PER COMMON SHARE
$
(0.14)

$
(0.08)

$
(0.44)

$
(0.31)
BASIC AND DILUTED WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING

22,766,890

22,708,034

22,728,275

20,555,588


		Three Months Ended September 30,				Nine Months Ended September 30,
		2023		2022		2023		2022
SALES:
Service revenue, net		$	3,738	$	2,060	$	8,574	$	6,291
Other revenue			831		235		2,469		977
Revenue, net of contractual allowances and adjustments			4,569		2,295		11,043		7,268
Adjustment for allowance for doubtful accounts			(51)		(80)		(175)		(247)
Net sales			4,518		2,215		10,868		7,021
COST OF SALES:
Cost of service revenue			2,401		1,512		6,050		4,414
Cost of other revenue			232		267		813		695
Total cost of sales			2,633		1,779		6,863		5,109
Gross profit			1,885		436		4,005		1,912
OPERATING EXPENSES:
Operating expenses			3,333		3,665		10,771		12,383
OPERATING LOSS			(1,448)		(3,229)		(6,766)		(10,471)
OTHER (EXPENSE) INCOME:
Interest expense, net			(7)		(6)		(12)		(6)
Warrant revaluation			–		59		–		578
Gain on settlement of liability			–		3		–		4
Total other (expense) income			(7)		56		(12)		576
LOSS BEFORE INCOME TAXES			(1,455)		(3,173)		(6,778)		(9,895)
INCOME TAX EXPENSE			–		–		–		—
NET LOSS			(1,455)		(3,173)		(6,778)		(9,895)

Less: Net income attributable to noncontrolling interest in joint venture			–		(6)		–		(18)
NET LOSS ATTRIBUTABLE TO PRECIPIO, INC. COMMON STOCKHOLDERS		$	(1,455)	$	(3,179)	$	(6,778)	$	(9,913)

BASIC AND DILUTED LOSS PER COMMON SHARE	(1)	$	(1.04)	$	(2.79)	$	(5.39)	$	(8.72)
BASIC AND DILUTED WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING	(1)		1,394,596		1,138,345		1,258,633		1,136,414

(1) Net loss per share and the number of shares used in the per share calculations for all periods presented reflect the one-for-twenty reverse stock split, which was effected on September 21, 2023.

See notes to unaudited condensed consolidated financial statements.

Table of Contents

PRECIPIO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars in thousands)

(unaudited)

For the Three Months Ended September 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, July 1, 2022

47

$
—

22,708,708

$
227

$
107,114

$
(86,828)

$
20,513

$
52

$
20,565
Net (loss) income

—

—

—

—

—

(3,179)

(3,179)

6

(3,173)
Issuance of common stock in connection with at the market offering, net of issuance costs

—

—

85,023

1

128

—

129

—

129
Proceeds upon issuance of common stock from exercise of warrants

—

—

26,529

—

11

—

11

—

11
Stock-based compensation

—

—

—

—

722

—

722

—

722
Balance, September 30, 2022

47

$
—

22,820,260

$
228

$
107,975

$
(90,007)

$
18,196

$
58

$
18,254

For the Nine Months Ended September 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, 2022

47

$
—

22,708,442

$
227

$
104,431

$
(80,094)

$
24,564

$
40

$
24,604
Net (loss) income

—

—

—

—

—

(9,913)

(9,913)

18

(9,895)
Issuance of common stock in connection with at the market offering, net of issuance costs

—

—

85,023

1

128

—

129

—

129
Proceeds upon issuance of common stock from exercise of warrants

—

—

26,795

—

11

—

11

—

11
Stock-based compensation

—

—

—

—

3,405

—

3,405

—

3,405
Balance, September 30, 2022

47

$
—

22,820,260

$
228

$
107,975

$
(90,007)

$
18,196

$
58

$
18,254


	For the Three Months Ended September 30, 2023
	Preferred Stock			Common Stock			Additional						Noncontrolling
	Outstanding	Par		Outstanding	Par		Paid-in		Accumulated		Total		Interest in
	Shares	Value		Shares (1)	Value (1)		Capital (1)		Deficit		Precipio, Inc.		Joint Venture		Total
Balance, July 1, 2023	47	$	—	1,378,115	$	14	$	111,632	$	(97,620)	$	14,026	$	65	$	14,091
Net (loss) income	—		—	—		—		—		(1,455)		(1,455)		—		(1,455)
Payment of fractional common shares in conjunction with the 1-for-20 reverse stock split, which was effected on September 21, 2023	—		—	(52)		—		—		—		—		—		—
Issuance of common stock in connection restricted stock awards	—		—	2,492		—		16		—		16		—		16
Stock-based compensation	—		—	—		—		350		—		350		—		350
Balance, September 30, 2023	47	$	—	1,380,555	$	14	$	111,998	$	(99,075)	$	12,937	$	65	$	13,002

	For the Nine Months Ended September 30, 2023
	Preferred Stock			Common Stock			Additional						Noncontrolling
	Outstanding	Par		Outstanding	Par		Paid-in		Accumulated		Total		Interest in
	Shares	Value		Shares (1)	Value (1)		Capital (1)		Deficit		Precipio, Inc.		Joint Venture		Total
Balance, January 1, 2023	47	$	—	1,141,013	$	11	$	108,588	$	(92,297)	$	16,302	$	65	$	16,367
Net (loss) income	—		—	—		—		—		(6,778)		(6,778)		—		(6,778)
Issuance of common stock in connection with purchase agreements	—		—	206,250		2		1,758		—		1,760		—		1,760
Issuance of common stock in connection with at the market offering, net of issuance costs	—		—	30,852		1		484		—		485		—		485
Payment of fractional common shares in conjunction with the 1-for-20 reverse stock split, which was effected on September 21, 2023	—		—	(52)		—		—		—		—		—		—
Issuance of common stock in connection restricted stock awards	—		—	2,492		—		16		—		16		—		16
Stock-based compensation	—		—	—		—		1,152		—		1,152		—		1,152
Balance, September 30, 2023	47	$	—	1,380,555	$	14	$	111,998	$	(99,075)	$	12,937	$	65	$	13,002

(1) The common stock and additional paid-in capital for all periods presented reflect the one-for-twenty reverse stock split, which was effected on September 21, 2023.

See notes to unaudited condensed consolidated financial ~~statements~~

statements.

Table of Contents

PRECIPIO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars in thousands)

(unaudited)


		For the Three Months Ended September 30, 2021																For the Three Months Ended September 30, 2022
	Preferred Stock				Common Stock			Additional						Noncontrolling				Preferred Stock			Common Stock			Additional						Noncontrolling
	Outstanding		Par		Outstanding	Par		Paid-in		Accumulated		Total		Interest in				Outstanding	Par		Outstanding	Par		Paid-in		Accumulated		Total		Interest in
	Shares		Value		Shares	Value		Capital		Deficit		Precipio, Inc.		Joint Venture		Total		Shares	Value		Shares (1)	Value (1)		Capital (1)		Deficit		Precipio, Inc.		Joint Venture		Total
Balance, July 1, 2021	47		$	—	22,707,063	$	227	$	103,029	$	(76,029)	$	27,227	$	31	$	27,258
Balance, July 1, 2022																		47	$	—	1,135,435	$	11	$	107,330	$	(86,828)	$	20,513	$	52	$	20,565
Net loss	—			—	—		—		—		(1,860)		(1,860)		6		(1,854)	—		—	—		—		—		(3,179)		(3,179)		6		(3,173)
Proceeds upon issuance of common stock from exercise of stock options	—			—	1,229		—		3		—		3		—		3
Issuance of common stock in connection with at the market offering, net of issuance costs																		—		—	4,251		—		129		—		129		—		129
Proceeds upon issuance of common stock from exercise of warrants																		—		—	1,327		—		11		—		11		—		11
Stock-based compensation	—			—	—		—		510		—		510		—		510	—		—	—		—		722		—		722		—		722
Balance, September 30, 2021	47		$	—	22,708,292	$	227	$	103,542	$	(77,889)	$	25,880	$	37	$	25,917
Balance, September 30, 2022																		47	$	—	1,141,013	$	11	$	108,192	$	(90,007)	$	18,196	$	58	$	18,254

		For the Nine Months Ended September 30, 2021																For the Nine Months Ended September 30, 2022
	Preferred Stock				Common Stock			Additional						Noncontrolling				Preferred Stock			Common Stock			Additional						Noncontrolling
	Outstanding		Par		Outstanding	Par		Paid-in		Accumulated		Total		Interest in				Outstanding	Par		Outstanding	Par		Paid-in		Accumulated		Total		Interest in
	Shares		Value		Shares	Value		Capital		Deficit		Precipio, Inc.		Joint Venture		Total		Shares	Value		Shares (1)	Value (1)		Capital (1)		Deficit		Precipio, Inc.		Joint Venture		Total
Balance, January 1, 2021	47		$	—	17,576,916	$	176	$	85,523	$	(71,564)	$	14,135	$	27	$	14,162
Balance, January 1, 2022																		47	$	—	1,135,422	$	11	$	104,647	$	(80,094)	$	24,564	$	40	$	24,604
Net loss	—			—	—		—		—		(6,325)		(6,325)		10		(6,315)	—		—	—		—		—		(9,913)		(9,913)		18		(9,895)
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	—		—	4,251		—		129		—		129		—		129
Proceeds upon issuance of common stock from exercise of warrants	—			—	74,000		1		399		—		400		—		400	—		—	1,340		—		11		—		11		—		11
Proceeds upon issuance of common stock from exercise of stock options	—			—	1,229		—		3		—		3		—		3
Issuance of common stock for consulting services	—			—	55,147		—		150		—		150		—		150
Stock-based compensation	—			—	—		—		1,310		—		1,310		—		1,310	—		—	—		—		3,405		—		3,405		—		3,405
Balance, September 30, 2021	47		$	—	22,708,292	$	227	$	103,542	$	(77,889)	$	25,880	$	37	$	25,917
Balance, September 30, 2022																		47	$	—	1,141,013	$	11	$	108,192	$	(90,007)	$	18,196	$	58	$	18,254

(1) The common stock shares and additional paid-in capital for all periods presented reflect the one-for-twenty reverse stock split, which took effect on September 21, 2023.

See notes to unaudited condensed consolidated financial statements

Table of Contents

PRECIPIO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(unaudited)


	Nine Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(9,895)	$	(6,315)	$	(6,778)	$	(9,895)

Adjustments to reconcile net loss to net cash flows used in operating activities:
Depreciation and amortization		910		835		931		910
Amortization of operating lease right-of-use asset		139		162		153		139
Amortization of finance lease right-of-use asset		99		44		63		99
Amortization of deferred financing costs, debt discounts and debt premiums		3		2		2		3
Gain on forgiveness of debt		—		(794)
Gain on settlement of liability		(4)		(47)		—		(4)
Stock-based compensation		3,405		1,310		1,168		3,405
Value of stock issued in payment of services		—		150
Provision for losses on doubtful accounts		245		82		175		245
Warrant revaluation		(578)		434		—		(578)
Derecognition of finance lease right-of-use asset		—		60
Changes in operating assets and liabilities:
Accounts receivable		(503)		222		(622)		(503)
Inventories		(99)		(330)		72		(99)
Other assets		341		(354)		306		341
Accounts payable		235		(156)		468		235
Operating lease liabilities		(136)		(167)		(150)		(136)
Accrued expenses and other liabilities		(383)		(274)
Deferred revenue						(90)		(5)
Accrued expenses						629		(378)
Net cash used in operating activities		(6,221)		(5,136)		(3,673)		(6,221)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(225)		(624)		(77)		(225)
Net cash used in investing activities		(225)		(624)		(77)		(225)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on finance lease obligations		(124)		(79)		(62)		(124)
Deposits on finance lease right-of-use assets		—		(41)
Issuance of common stock, net of issuance costs		129		16,207		2,245		129
Proceeds from exercise of warrants		11		400		—		11
Proceeds from exercise of stock options		—		3
Principal payments on long-term debt		(94)		(33)		(316)		(94)
Payments on common stock warrant liabilities		—		(130)
Net cash flows (used in) provided by financing activities		(78)		16,327
Net cash flows provided by (used in) financing activities						1,867		(78)
NET CHANGE IN CASH		(6,524)		10,567		(1,883)		(6,524)
CASH AT BEGINNING OF PERIOD		11,668		2,656		3,445		11,668
CASH AT END OF PERIOD	$	5,144	$	13,223	$	1,562	$	5,144

See notes to unaudited condensed consolidated financial statements.

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PRECIPIO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS- CONTINUED

(Dollars in thousands)

(unaudited)


	Nine Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2023		2022
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest	$	32	$	22	$	29	$	32

SUPPLEMENTAL DISCLOSURE OF CONSULTING SERVICES OR ANY OTHER NON-CASH COMMON STOCK RELATED ACTIVITY
Purchases of equipment financed through accounts payable		34		35		3		34
Prepaid insurance financed with loan		413		—		372		413
Operating lease right-of-use assets obtained in exchange for operating lease obligations		92		—		58		92
Finance lease right-of-use assets obtained in exchange for finance lease obligations		—		346

See notes to unaudited condensed consolidated financial statements.

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PRECIPIO, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Nine Months Ended September 30, ~~2022~~2023 and ~~2021~~2022

1. BUSINESS DESCRIPTION

Business Description.

Precipio, Inc., and 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~~outdated 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~~believes cancer diagnostics ~~as requiring~~requires a holistic approach to improve the quality of diagnostic data ~~for improved~~and achieve more accurate interpretations of the patient situation, 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 has structured its organization ~~in order~~ to ~~drive development of~~develop diagnostic products. Laboratory and R&D facilities located in New Haven, Connecticut and Omaha, Nebraska house ~~development~~ teams that collaborate on the development of new products and services. The Company operates CLIA laboratories in both the New Haven, Connecticut and Omaha, 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 Products Division commercial team generates direct sales as well as works with our key distributors. Global healthcare distributors, such as ThermoFisher and McKesson, have partnered with us to form the backbone of the Company’s go-to-market strategy and enable us to access laboratories around the country that can benefit from using our diagnostic products.

Our operating structure promotes the harnessing of our proprietary technology and genetic diagnostic expertise to bring to market the Company’s robust pipeline of innovative solutions designed to address the root causes of misdiagnoses.

Joint Venture.

The Company has determined that it holds a variable interest in a joint venture formed in April 2020 (the “Joint Venture”) and is the primary beneficiary of the variable interest entity (“VIE”). See Note 2 - Summary of Significant Accounting Policies for further discussion regarding consolidation of variable interest entities.

The Joint Venture was dissolved on November 1, 2023 with an effective date of December 31, 2022.

Going Concern.

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operating losses and has used cash in its operating activities for the past several years. For the nine months ended September 30, ~~2022,~~2023, the Company had a net loss of ~~$9.9~~$6.8 million and net cash used in operating activities of ~~$6.2~~$3.7 million. As of September 30, ~~2022,~~2023, the Company had an accumulated deficit of ~~$90.0~~$99.1 million and a negative working capital of ~~$3.0~~$1.1 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,~~macroeconomic environment and geopolitical instability, and raising additional financing to meet its debt obligations and paying liabilities arising from normal business operations when they come due.

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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,~~14, 2023, the Company entered into a sales agreement with ~~A.G.P./Alliance Global Partners (“AGP”),~~AGP, pursuant to which the Company may offer and sell its common stock having aggregate sales proceeds of up to ~~$22.0~~$5.8 million, to or through AGP, as sales agent (the “AGP 2023 Sales Agreement”). ~~From~~ The sale of our shares of common stock to or through AGP, pursuant to the AGP 2023 Sales Agreement, will be made pursuant to the registration statement (the “2023 Registration Statement”) on Form S-3 (File No. 333-271277), filed by the Company with the SEC on April ~~2, 2021 through~~14, 2023, as amended by Amendment No. 1 filed by the Company with the SEC on April 25, 2023, and declared effective on April 27, 2023. As of the date the condensed consolidated financial statements were issued, we have received ~~approximately $15.6 million~~less than $1 thousand in gross proceeds through the AGP 2023 Sales Agreement from the sale of ~~4,586,023~~25 shares of common ~~stock, leaving the~~stock. The Company ~~with $6.4~~has approximately $3.8 million available for future sales pursuant to the AGP 2023 Sales ~~Agreement.~~Agreement. See Note 7 Stockholders’ Equity, AGP 2023 Sales Agreement, for further discussion.

●

On June 8, 2023, the Company entered into a securities purchase agreement pursuant to which it received $2.0 million in gross proceeds through the sale of 206,250 shares of common stock and warrants to purchase shares of our common stock. Issuance costs were approximately $0.2 million and the Company intends to use the net proceeds for working capital and general corporate purposes. See Note 7 Stockholders’ Equity, Registered Direct Offering, for further discussion.

Notwithstanding the aforementioned circumstances, there remains substantial doubt about the Company’s ability to continue as a going 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 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.

Nasdaq Compliance.

On October 28, 2022, we received a letter from the Nasdaq Stock Market LLC (“Nasdaq”) notifying us that for the past 30 consecutive business days, the closing bid price per share of our common stock was below $1.00, the minimum bid price requirement for continued listing on Nasdaq pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). On April 27, 2023, Nasdaq notified us that we were eligible for an extension to comply with the Bid Price Rule until October 23, 2023, by which date we must have regained compliance with the Bid Price Rule for at least ten consecutive business days along with compliance of other Nasdaq listing rules.

On September 21, 2023 we filed a Certificate of Amendment to our Third Amended and Restated Certificate of Incorporation with the Secretary of State of Delaware, pursuant to which we effected a 1-for-20 reverse stock split (the “Reverse Stock Split”) of our issued and outstanding common stock. The Reverse Stock Split became effective as of 5:00 p.m. (Eastern Time) on September 21, 2023, and our common stock began trading on a split-adjusted basis on the Nasdaq Capital Market at the market open on September 22, 2023. On October 6, 2023, we received notification from Nasdaq that for ten consecutive business days, the closing bid price of our common stock was at least $1.00 per share, and accordingly, the Company regained compliance with the Bid Price Rule, and that the matter is now closed.

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation.

The accompanying condensed consolidated financial statements are presented in conformity with GAAP. As required under GAAP, pursuant to the Reverse Stock Split, unless otherwise indicated, the Company has adjusted all share amounts, per share data, share prices, exercise prices and asconversion rates set forth in these notes and the accompanying condensed consolidated financial statements. As of September 30, ~~2022~~2023 and for the three and nine months ended September 30, 2023 and 2022, ~~and 2021,~~the condensed consolidated financial statements are unaudited and reflect all adjustments (consisting of only normal recurring adjustments) that are necessary for a fair presentation of the financial position and operating results for the interim periods. These unaudited condensed consolidated financial statements and notes should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, ~~2021~~2022 contained in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (the “SEC”) on March 30, ~~2022.~~2023. The results of operations for the interim periods presented are not necessarily indicative of the results for fiscal year ~~2022.~~2023.

The condensed consolidated financial statements include the accounts of Precipio and its wholly owned 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 intercompany balances have been eliminated in consolidation.

Reclassification.

Certain reclassifications were made to the statements of cash flows related to splitting accruals and deferred revenue to separate lines in order to conform to the 2023 presentation. These reclassifications had no effect on previously reported retained earnings, net income, total assets or liabilities, or cash flows used in operating activities.

Recently Adopted Accounting Pronouncements.

In ~~July 2021,~~June 2016, the FASB issued ASU 2016-13 “Measurement of Credit Losses on Financial ~~Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-05, Lease (Topic 842)~~Instruments”, ~~“Lessors - Certain Leases~~which replaces current methods for evaluating impairment of financial instruments not measured at fair value, including trade accounts receivable and certain debt securities, 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 a~~current expected credit loss at lease commencement if classified as a sales-type or direct financing lease. Under the new guidance, these leases will be classified as an operating lease. The amendments are effective for fiscal years beginning after December 15, 2021, with early adoption permitted.model. The Company adopted this guidance on January 1, ~~2022.~~2023. The adoption of this standard was not material to our condensed consolidated financial statements.

~~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

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~~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, 2023. 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 4,528,682 and 3,596,917 shares of our common stock have been excluded from the computation of diluted loss per share at September 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:~~

September 30,

2022

2021
Stock options

3,698,712

2,647,516
Warrants

712,470

831,901
Preferred stock

117,500

117,500
Total

4,528,682

3,596,917

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Loss Per Share.

Basic loss per share is calculated based on the weighted-average number of common shares (including pre-funded warrants) 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. Shares of the Company’s common stock underlying pre-funded warrants are included in the calculation of basic and diluted loss per share due to the negligible exercise price of the pre-funded warrants. Options, warrants and conversion rights pertaining to 705,976 and 226,434 shares of our common stock have been excluded from the computation of diluted loss per share at September 30, 2023 and 2022, 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:


	September 30,
	2023	2022
Stock options	234,213	184,936
Warrants	465,888	35,623
Preferred stock	5,875	5,875
Total	705,976	226,434

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 decisions that most significantly affect the economic 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 which are included on our condensed consolidated balance sheets. Intercompany balances are eliminated in consolidation and not reflected in the following table.


(dollars in thousands)	September 30, 2022		December 31, 2021		September 30, 2023		December 31, 2022
Assets:
Accounts receivable, net	$	248	$	180	$	219	$	335
Total assets	$	248	$	180	$	219	$	335
Liabilities:
Accrued expenses	$	32	$	36	$	17	$	50
Total liabilities	$	32	$	36	$	17	$	50
Noncontrolling interest in Joint Venture	$	58	$	40	$	65	$	65
Total stockholders' equity	$	114	$	79
Equity attributable to Precipio, Inc.					$	127	$	127

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3. LONG-TERM DEBT

Long-term debt consists of the following:


	Dollars in Thousands				Dollars in Thousands
	September 30, 2022		December 31, 2021		September 30, 2023		December 31, 2022
Department of Economic and Community Development (DECD)	$	184	$	205
Connecticut Department of Economic and Community Development (DECD)					$	154	$	176
DECD debt issuance costs		(16)		(19)		(13)		(15)
Financed insurance loan		340		—		306		228
Total long-term debt		508		186		447		389
Current portion of long-term debt		(367)		(26)		(334)		(255)
Long-term debt, net of current maturities	$	141	$	160	$	113	$	134

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 includes interest paid monthly at 3.25%. The maturity date of the DECD 2018 Loan was extended to May 31, 2028 and the modification did not have a material impact on the Company’s cash flows.

Amortization of the debt issuance costs were ~~$1,000~~less than $1 thousand for the three months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and ~~$3,000~~$2 thousand and $3 thousand for the nine months ended September 30, 2023 and 2022, ~~and 2021,~~ respectively.

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Financed Insurance Loan.

The Company finances certain of its insurance premiums (the “Financed Insurance Loans”). In July ~~2022,~~2023, the Company financed $0.4 million with a ~~5.99%~~9.99% interest rate and is obligated to make payments on a monthly basis through June 2024. In July 2022, the Company financed $0.4 million with a 5.99% interest rate and made payments on a monthly basis through June 2023. As of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Financed Insurance Loan’s outstanding balance of $0.3 million and ~~zero,~~$0.2 million, respectively, was included in current maturities of long-term debt in the Company’s condensed consolidated balance ~~sheet.~~sheets. A corresponding prepaid asset was included in other current assets.

4. ACCRUED EXPENSES OTHER CURRENT LIABILITIES.

Accrued expenses at September 30, ~~2022~~2023 and December 31, ~~2021~~2022 are as follows:


(dollars in thousands)	2022		2021		September 30, 2023		December 31, 2022
Accrued expenses	$	753	$	1,033	$	1,212	$	983
Accrued compensation		680		718		846		491
Accrued franchise, property and sales and use taxes		84		148		136		91
Accrued interest		19		19		19		19
	$	1,536	$	1,918	$	2,213	$	1,584

The Company recorded certain settled reductions in accrued expenses and accounts payable as gains which are included in gain on settlement of liability, net in the condensed consolidated statements of operations. During the three ~~and nine~~ months ended September 30, 2023 and 2022, ~~$3,000~~zero and ~~$4,000,~~$3 thousand, respectively, were recorded as a gain on settlement of

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liability. During the ~~three and~~ nine months ended September 30, ~~2021, $13,000~~2023 and ~~$47,000,~~2022, zero and $4 thousand, respectively, were recorded as a gain on settlement of liability.

5. COMMITMENTS AND CONTINGENCIES

The Company is involved in legal proceedings related to matters, which are incidental 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.

PURCHASE COMMITMENTS

The Company has entered into purchase commitments for reagents from suppliers. These agreements started in 2011 and run through 2025. The Company and the suppliers will true up the amounts on an annual basis. The future minimum purchase commitments under these and other purchase agreements are approximately $0.7 million and $1.3 million at September 30, 2023 and December 31, 2022, respectively.

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 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 September 30, ~~2022~~2023 and December 31, ~~2021.~~2022.

LEGAL AND REGULATORY ENVIRONMENT

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 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

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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 one 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 terms are not included in our right-of-use (“ROU”) assets and lease liabilities as they are not reasonably certain of exercise. We regularly evaluate the renewal options and, when they are reasonably certain of exercise, we include the renewal period in our lease term. As our leases do not provide an implicit rate, we use our collateralized incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments.

Operating leases result in the recognition of ROU 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

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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 are not recorded on the balance sheet. The primary leases we enter into with initial terms of 12 months or less are 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, 2022 to May 31, 2025. As a result of this lease extension agreement, we recognized an additional operating lease ROU asset and corresponding operating lease liability of $0.1 million which equals the present value of the remaining payments due under the lease extension.

The Company also recognizes ROU assets from finance leases in connection with its ~~HSRR~~HemeScreen Reagent Rental (“HSRR”) 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 no derecognized finance lease ROU assets for the three and nine months ended September 30, ~~2022. Derecognized finance lease ROU assets for the three~~2023 and ~~nine months ended September 30, 2021 were less than $0.1 million,~~2022, 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 lease term at no additional cost. For these contracts, the Company accounts for the arrangements as sales-type leases. The lease asset for sales-type leases is the 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 net investment in leased assets was $0.1 million ~~and $0.2 million~~ as of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, 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	September 30, 2023		December 31, 2022
Assets:
Operating lease right-of-use assets, net	$	668	$	763
Finance lease right-of-use assets, net (1)		194		257
Total lease assets	$	862	$	1,020

Liabilities:
Current:
Current maturities of operating lease liabilities	$	222	$	199
Current maturities of finance lease liabilities		143		162
Noncurrent:
Operating lease liabilities, less current maturities		459		574
Finance lease liabilities, less current maturities		25		68
Total lease liabilities	$	849	$	1,003

(1)

As of September 30, 2023 and December 31, 2022, finance lease right-of-use assets included $3 thousand and $13 thousand, respectively, of assets related to finance leases associated with the HSRR program.

As of September 30, 2023, the estimated future minimum lease payments, excluding non-lease components, are as follows:


(dollars in thousands)	Operating Leases		Finance Leases		Total
		September 30,		September 30,		September 30,
		2023		2023		2023
2023 (remaining)	$	68	$	22	$	90
2024		258		80		338
2025		224		65		289
2026		214		26		240
Total lease obligations		764		193		957
Less: Amount representing interest		(83)		(25)		(108)
Present value of net minimum lease obligations		681		168		849
Less, current portion		(222)		(143)		(365)
Long term portion	$	459	$	25	$	484

1415

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(dollars in thousands)

Classification on the Condensed Consolidated Balance Sheet

September 30, 2022

December 31, 2021
Assets:

Operating lease right-of-use assets, net

$
811

$
858
Finance lease right-of-use assets, net (1)

284

371
Total lease assets

$
1,095

$
1,229

Liabilities:

Current:

Current maturities of operating lease liabilities

$
194

$
166
Current maturities of finance lease liabilities

168

222
Noncurrent:

Operating lease liabilities, less current maturities

625

697
Finance lease liabilities, less current maturities

89

159
Total lease liabilities

$
1,076

$
1,244

~~(1)~~

~~As of September 30, 2022 and December 31, 2021, finance lease right-of-use assets included $23 and $61, respectively, of assets related to finance leases associated with the HSRR program.~~

~~As of September 30, 2022 and December 31, 2021, the estimated future minimum lease payments, excluding non-lease components, are as follows:~~

(dollars in thousands)

Operating Leases

Finance Leases

Total

September 30,

December 31,

September 30,

December 31,

September 30,

December 31,

2022

2021

2022

2021

2022

2021
2022

$
62

$
227

$
33

$
176

$
95

$
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

953

1,035

305

448

1,258

1,483
Less: Amount representing interest

(134)

(172)

(48)

(67)

(182)

(239)
Present value of net minimum lease obligations

819

863

257

381

1,076

1,244
Less, current portion

(194)

(166)

(168)

(222)

(362)

(388)
Long term portion

$
625

$
697

$
89

$
159

$
714

$
856

Other information as of September 30, ~~2022~~2023 and December 31, ~~2021~~2022 is as follows:


	September 30,	December 31,	September 30,	December 31,
	2022	2021	2023	2022
Weighted-average remaining lease term (years):
Operating leases	3.9	4.7	3.0	3.7
Finance leases	2.9	3.1	2.3	2.8
Weighted-average discount rate:
Operating leases	8.00%	8.00%	8.00%	8.00%
Finance leases	10.23%	10.03%	10.54%	10.31%

During the nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, operating cash flows from operating leases was ~~$0.1~~$0.2 million and ~~$0.2~~$0.1 million, respectively, and operating lease ROU assets obtained in exchange for operating lease liabilities was $0.1 million, ~~and zero,~~ respectively.

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Operating Lease Costs

Operating lease costs were approximately $0.1 million during the three months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and $0.2 ~~million and $0.3~~ million for the nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively. These costs are primarily related to long-term operating leases for the Company’s facilities and laboratory equipment. Short-term and variable lease costs were less than $0.1 million for the three and nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

Finance Lease Costs

Finance lease amortization and interest expenses are included in the condensed consolidated statements of operations for the three and nine months ended September 30, ~~2022~~2023 and ~~2021.~~2022. The balances within these accounts are less than $0.1 million, respectively.

7. STOCKHOLDERS’ EQUITY

Common Stock.

Pursuant to our Third Amended and Restated Certificate of Incorporation, as amended, we currently have 150,000,000 shares of common stock authorized for issuance. On December 20, 2018, the Company’s shareholders approved the proposal to authorize the Company’s Board of Directors to, in its discretion, amend the Company’s Third Amended and Restated Certificate of Incorporation to increase the total number of authorized shares of common stock from 150,000,000 shares to 250,000,000 shares. The Company has not yet implemented this increase.

During the three and nine months ended September 30, ~~2022,~~2023, the Company issued ~~26,529 and 26,795~~zero shares of its common stock, respectively, in connection with the exercise of ~~26,529 and 26,795~~ warrants. ~~The warrant exercises resulted in net cash proceeds to the Company of $11,000 during the nine months ended September 30, 2022.~~

During the three and nine months ended September 30, ~~2021,~~2022, the Company ~~issued zero~~1,327 and ~~74,000~~1,340 shares of its common stock, respectively, in connection with the exercise of ~~zero~~1,327 and ~~74,000~~1,340 warrants, respectively. The warrant exercises during the three and nine months ended September 30, 2022 resulted in net cash proceeds to the Company of ~~$0.4 million during the nine months ended September 30, 2021~~

~~During the nine months ended September 30, 2021, the Company issued 55,147 shares of its common stock in connection with consulting services of approximately $0.2 million.~~

During the three and nine months ended September 30, 2021, the Company issued 1,229 shares of its common stock, respectively, in connection with the exercise of 1,229 stock options. The stock option exercises resulted in net cash proceeds to the Company of $3,000 for the three and nine months ended September 30, 2021,$11 thousand, respectively.

~~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 nine months ended September 30, 2021, we received approximately zero and $1.3 million, respectively, from the sale of zero and 500,000 shares of common stock, respectively, to Lincoln Park under the LP 2020 Purchase Agreement. The Company terminated the LP 2020 Purchase Agreement effective June 14, 2021.

At The Market Offering Agreement

AGP Sales 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~~was permitted to 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

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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~~“2021 ATM Offering”). The Company

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is limited in the number of shares it can sell in the 2021 ATM Offering due to the offering limitations currently applicable to the Company under General Instruction I.B.6. of Form S-3 and the Company’s public float as of the applicable date of such sales, as well as the number of authorized and unissued shares available for issuance, in accordance with the terms 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~~were permitted to 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 iswas 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 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~~terminated upon the ~~termination~~expiration of the ~~AGP Sales Agreement by AGP or the Company, as permitted therein.~~Company’s Registration Statement on Form S-3 (File No. 333-237445).

During the three and nine months ended September 30, 2023, we received net proceeds of zero and $0.5 million from the sale of zero and 30,827 shares of common stock through the AGP Sales Agreement. During the three and nine months ended September 30, 2022, we received net proceeds of $0.1 million in each period from the sale of ~~85,023~~ 4,251 shares of common stock through AGP, ~~respectively. During the three and nine months ended September 30, 2021,~~ respectively~~we received net proceeds of zero and approximately $14.9 million, respectively, from the sale of zero and 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 ~~$15.1~~$15.6 million in net proceeds, after issuance costs of approximately $0.5 million, from the sale of 260,128 shares of common stock pursuant to the AGP Sales Agreement.

AGP 2023 Sales Agreement

On April 14, 2023, the Company entered into the AGP 2023 Sales Agreement, in an “at the market offering” (as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended) of the shares of Common Stock. AGP will be entitled to a commission at a fixed rate of 3.0% of the gross proceeds from each sale of shares of Common Stock pursuant to the AGP 2023 Sales Agreement.

The sale of our shares of Common Stock to or through AGP, pursuant to the AGP 2023 Sales Agreement, will be made pursuant to the 2023 Registration Statement on Form S-3 (File No. 333-271277), filed by the Company with the SEC on April 14, 2023, as amended by Amendment No. 1 filed by the Company with the SEC on April 25, 2023, and declared effective on April 27, 2023, for an aggregate offering price of up to $5.8 million.

During the three and nine months ended September 30, 2023, we received net proceeds of less than $1 thousand, respectively, from the sale of 25 shares of common stock pursuant to the AGP 2023 Sales Agreement. As a result of sales

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already made through the AGP 2023 Sales Agreement ~~leaving us with $6.4~~and the Registered Direct Offering, mentioned below, the Company has approximately $3.8 million available for future sales pursuant to the AGP 2023 Sales Agreement.

Registered Direct Offering

On June 8, 2023, the Company, entered into a securities purchase agreement (the “Purchase Agreement”) with certain institutional investors (the “Purchasers”), pursuant to which the Company agreed to issue and sell to the Purchasers, in a registered direct offering (the “Registered Direct Offering”), an aggregate of: (i) 206,250 shares (the “Shares”) of its common stock, $0.01 par value (the “Common Stock”), at a price of $9.00 per share, and (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 15,972 shares of Common Stock, at a price of $8.98 per Pre-Funded Warrant. The Company reviewed the provisions of the Pre-Funded Warrants to determine the balance sheet classification and concluded that these warrants are to be classified as equity and are not subject to remeasurement on each balance sheet date. The Pre-Funded Warrants are immediately exercisable, have an exercise price of $0.02 per share, and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full. As of September 30, 2023, no Pre-Funded Warrants have been exercised.

In a concurrent private placement (the “Private Placement” and together with the Registered Direct Offering, the “Offering”), pursuant to the Purchase Agreement, the Company agreed to issue and sell to the Purchasers, for no additional consideration, warrants (the “RDO Common Warrants” and, together with the Shares and the Pre-Funded Warrants, the “Securities”) to purchase up to 444,444 shares of Common Stock. The Company reviewed the provisions of the RDO Common Warrants to determine the balance sheet classification and concluded that these warrants are to be classified as equity and are not subject to remeasurement on each balance sheet date. The RDO Common Warrants are exercisable beginning six months after the date of issuance, have an exercise price of $12.60 per share, and will expire December 12, 2028. The fair value of the RDO Common Warrants of approximately $3.5 million at the date of issuance was estimated using the Black-Scholes model which used the following inputs: term of 5 years; risk free rate of 3.89%; volatility of 143%; and share price of $9.00 per share based on the trading price of the Company’s common stock. The Company allocated $1.3 million of the issuance proceeds to the RDO Common Warrants based on the relative fair value of the RDO Common Warrants, Common Stock and Pre-Funded Warrants issued in the Offering. A holder of Pre-Funded Warrants may not exercise the warrant if the holder, together with its affiliates, would beneficially own more than 4.99% (or, at the election of the purchaser, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to such exercise. A holder of Pre-Funded Warrants may increase or decrease this percentage not in excess of 19.99% by providing at least 61 days’ prior notice to the Company.

The Registered Direct Offering resulted in gross proceeds to the Company of approximately $2.0 million. The net proceeds to the Company from the Registered Direct Offering are approximately $1.8 million, excluding any proceeds that may be received upon the cash exercise of the RDO Common Warrants, after deducting the financial advisor’s fees and estimated offering expenses payable by the Company. The Company intends to use the net proceeds from the Registered Direct Offering for working capital and general corporate purposes, which may include capital expenditures, research and development expenditures, regulatory affairs expenditures, clinical trial expenditures, acquisitions of new technologies and investments and others.

The Purchase Agreement contains customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company, other obligations of the parties, and termination provisions. Additionally, each of the directors and executive officers of the Company, pursuant to lock-up agreements (the “Lock-Up Agreements”), agreed not to sell or transfer any of the Company securities which they hold, subject to certain exceptions, during the 90-day period following the closing of the Registered Direct Offering. The Purchase Agreement also requires the Company to use commercially reasonable efforts to file a registration statement with the SEC to register the resale by the Purchasers of the shares of Common Stock issuable upon exercise of the RDO Common Warrants within thirty (30) days of the date of the Purchase Agreement. The Company filed this registration statement on Form S-1 (File No. 333-273172), which was declared effective by the SEC on July 19, 2023.

On June 7, 2023, the Company also entered into a financial advisory agreement (the “Financial Advisor Agreement”) with A.G.P./Alliance Global Partners (the “Financial Advisor”). Pursuant to the terms of the Financial Advisor Agreement, the Financial Advisor agreed to use its reasonable best efforts to arrange for the sale of the Securities.

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The Company paid the Financial Advisor a cash fee of $140,000 generated from the sale of the Shares and Pre-Funded Warrants.

The Financial Advisor Agreement contains customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company and the Financial Advisor, including for liabilities under the Securities Act of 1933, as amended (the “Securities Act”), other obligations of the parties, and termination provisions.

Pursuant to the Purchase Agreement, the Company has agreed that, subject to certain exceptions, (i) it will not issue any shares of common stock or securities exercisable or convertible into shares of common stock or to file any registration statement or amendment or supplement thereto for a period of ninety (90) days following the closing of the Offering and that (ii) it will not enter into a variable rate transaction for a period of one hundred eighty (180) days following the closing of the Offering.

The Registered Direct Offering was made pursuant to the 2023 Registration Statement, as supplemented by a prospectus supplement dated June 9, 2023. There is $3.8 million of remaining availability under the 2023 Registration Statement.

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.

Series B Preferred Stock.

The Company filed a Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock (“Series B Preferred Stock”) with the State of Delaware, which designates 6,900 shares of our preferred stock as Series B Preferred Stock. The Series B Preferred Stock has a stated value of ~~$1,000~~$1 thousand per share and a par value of $0.01 per share. The Series B Preferred Stock includes a beneficial ownership blocker but has no dividend rights (except to the extent dividends are also paid on the common stock). On August 28, 2017, the Company completed an underwritten public offering consisting of the Company’s Series B Preferred Stock and warrants.

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The conversion price of the Series B Preferred Stock contains a down round feature. 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 no conversions of Series B Preferred Stock during the three and nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively. At September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company had 6,900 shares of Series B Preferred Stock designated and issued and 47 shares of Series B Preferred Stock outstanding. Based on the stated value of ~~$1,000~~$1 thousand per share and a conversion price of ~~$0.40~~$8.00 per share, the outstanding shares of Series B Preferred Stock at September 30, ~~2022~~2023 were convertible into ~~117,500~~5,875 shares of common stock.

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Common Stock Warrants.

The following represents a summary of the warrants outstanding as of September 30, ~~2022:~~2023:


			Underlying	Exercise				Underlying	Exercise
	Issue Year	Expiration	Shares	Price		Issue Year	Expiration	Shares	Price
Warrants
(1)	2017	October 2022	666	$	0.40	2018	November 2023	3,789	$	108.00
(2)	2018	October 2022	7,207	$	112.50	2018	December 2023	2,564	$	108.00
(3)	2018	April 2023	69,964	$	5.40	2019	April 2024	7,374	$	108.00
~~(3)~~(4)	2018	April 2023	78,414	$	5.40	2019	May 2024	7,717	$	191.20
~~(4)~~(5)	2018	October 2022	15,466	$	11.25	2023	None	15,972	$	0.02
(5)	2018	July 2023	14,671	$	5.40
(5)	2018	July 2023	14,672	$	5.40
(5)	2018	August 2023	20,903	$	5.40
(5)	2018	August 2023	20,903	$	5.40
(5)	2018	September 2023	19,816	$	5.40
(5)	2018	September 2023	20,903	$	5.40
(6)	2018	November 2023	75,788	$	5.40	2023	December 2028	444,444	$	12.60
(6)	2018	December 2023	51,282	$	5.40
(7)	2019	April 2024	147,472	$	5.40
(8)	2019	May 2024	154,343	$	9.56
			712,470					481,860

~~(1)~~

(1)(2)(3)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.~~

~~(2)~~

~~These warrants were issued in connection with certain debt obligation settlement agreements.~~

~~(3)~~

~~These warrants were issued in connection with a 2018 securities purchase agreement, as amended, (the “2018 Note Agreement”).~~

~~(4)~~

~~These warrants were issued in connection with the 2018 Note Agreement.~~

~~(5)~~

~~These warrants were issued in connection with the 2018 Note Agreement.~~

~~(6)~~

~~These warrants were issued in connection with the 2018 Note Agreement.~~

~~(7)~~

~~These warrants were issued in connection with the 2018 Note Agreement.~~

~~(8)~~

~~These warrants were issued in connection with convertible notes issued in May 2019 (the “May 2019 Bridge Notes”).~~

During the three months ended September 30, 2022 and 2021, 83,501 and zero warrants expired, respectively. During the nine months ended September 30, 2022 and 2021, 92,626 and 239 warrants expired, respectively. These warrants had been issued in connection with ~~transactions which were completed in 2016 and 2017.~~a 2018 securities purchase agreement, as amended.

~~During the nine months ended September 30, 2021, 357~~(4) These warrants were ~~settled for cash of approximately $0.1 million. For further discussion, see~~issued in connection with convertible notes issued in May 2019.

(5)(6) These warrants were issued in connection with the ~~2016 Warrant Liability in Note 8 – Fair Value.~~2023 registered direct offering and concurrent private placement and are the pre-funded warrants and RDO common warrants discussed below.

There were ~~26,529~~1,327 and ~~26,795~~1,340 warrants exercised during the three and nine months ended September 30, 2022 for proceeds to the Company of ~~approximately $11,000,~~$11 thousand, respectively. During the three and nine months ended September 30, 2022,

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the intrinsic value of the warrants exercised was ~~less than $0.1 million. There were 74,000 warrants~~ ~~exercised during the nine months ended September 30, 2021 for proceeds to the Company of $0.2 million. During the nine months ended September 30, 2021, the intrinsic value of the warrants~~ ~~exercised was $0.1 million.~~$20 thousand, respectively.

~~Deemed Dividends~~

Certain of our preferred stock and warrant 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 no deemed dividends during~~During the three and nine months ended September 30, ~~2022~~2023, 5,593 and ~~2021.~~

13,012 warrants expired, respectively. The warrants had been issued in connection with transactions that were completed in 2018.

Pre-Funded Warrants. In connection with the Registered Direct Offering in June 2023, the Company issued 15,972 Pre-Funded Warrants to purchase up to 15,972 shares of Common Stock, at a price of $8.98 per Pre-Funded Warrant. The Pre-Funded Warrants are immediately exercisable, have an exercise price of $0.02 per share, and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full. Shares of the Company’s common stock underlying Pre-Funded warrants are included in the calculation of basic loss per share due to the negligible exercise price of the Pre-Funded warrants.

RDO Common Warrants. In connection with the Registered Direct Offering in June 2023, the Company issued 444,444 RDO Common Warrants to purchase up to 444,444 shares of Common Stock. The RDO Common Warrants are exercisable beginning six months after the date of issuance, have an exercise price of $12.60 per share, and will expire December 12, 2028.

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

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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. We are required to record these instruments at fair value at each reporting date and changes are recorded as a non-cash adjustment to earnings. The gains or losses included in earnings are reported in other income (expense) in our condensed consolidated statements of operations.

~~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 was zero as of September 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 Level 3 financial instruments and were valued using the Black Scholes model. As of September 30, ~~2022,~~2023, Bridge Note Warrant Liabilities outstanding were the result of convertible note issuances on ~~eight different~~various dates in 2018 and 2019. The assumptions used in the valuation of the Bridge Note Warrant Liabilities include the following ranges: remaining life to maturity of ~~0.1~~0.25 to ~~1.6~~0.62 years; volatility rate of ~~74%~~69% to ~~115%~~85%; and

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risk-free rate of ~~2.79%~~5.53% to ~~4.14%~~5.55%. As of December 31, ~~2021,~~2022, assumptions used in the valuation of the Bridge Note Warrant Liabilities include: remaining life to maturity of 0.3 to ~~2.4~~1.4 years; volatility rate of ~~61%~~69% to ~~199%~~77%; and risk free rate of ~~0.06~~4.42 to ~~0.73%~~4.76%.

During the three and nine months ended September 30, ~~2022 and 2021,~~2023, the ~~change~~changes in the fair value of the warrant liabilities measured using significant unobservable inputs (Level 3) were less than $1 thousand, respectively.

The changes during the three and nine months ended September 30, 2022 were comprised of the following:

Dollars in Thousands

Three Months Ended September 30, 2022




Bridge Note

Total Warrant

Warrant Liabilities

Liabilities
Beginning balance at July 1

$
87

$
87
Total gains:




Revaluation recognized in earnings

(59)

(59)
Balance at September 30

$
28

$
28

Three Months Ended September 30, 2021




Bridge Note

Total Warrant

Warrant Liabilities

Liabilities
Beginning balance at July 1

$
2,207

$
2,207
Total losses:




Revaluation recognized in earnings

(578)

(578)
Deductions – warrant liability settlement

–

–
Balance at September 30

$
1,629

$
1,629


Dollars in Thousands

	Three Months Ended September 30, 2022
	Bridge Note
	Warrant Liabilities
Beginning balance at July 1	$	87
Total gains:
Revaluation recognized in earnings		(59)
Balance at September 30	$	28

Dollars in Thousands

Nine Months Ended September 30, 2022

Bridge Note

Total Warrant




Warrant Liabilities

Liabilities
Beginning balance at January 1

$
606

$
606
Total losses:




Revaluation recognized in earnings

(578)

(578)
Deductions – warrant exercises and write-offs

–

–
Balance at September 30

$
28

$
28

Nine Months Ended September 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

–

434

434
Deductions – warrant liability settlement

(130)

–

(130)
Balance at September 30

$
–

$
1,629

$
1,629


Dollars in Thousands

	Nine Months Ended September 30, 2022
	Bridge Note
	Warrant Liabilities
Beginning balance at January 1	$	606
Total gains:
Revaluation recognized in earnings		(578)
Balance at September 30	$	28

9. EQUITY INCENTIVE PLAN

The Company currently issues stock awards under its 2017 Stock Option and Incentive Plan, as amended (the “2017 Plan”) which will expire on June 5, 2027. The shares authorized for issuance under the 2017 Plan were ~~3,852,853~~249,693 at September 30, ~~2022,~~2023, of which ~~152,842~~12,926 were available for future grant. The shares authorized under the 2017 Plan are

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subject to annual increases on January 1 by 5% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or such lessor number of shares determined by the Company’s Board of Directors

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or Compensation Committee. During the nine months ended September 30, ~~2022,~~2023, the shares authorized for issuance increased by ~~1,135,422~~57,051 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 nine months ended September 30, ~~2022,~~2023, the Company granted stock options to purchase up to ~~1,114,000~~58,530 shares of common stock at a weighted average exercise price of ~~$1.51~~$12.12 per share. These awards have vesting periods of up to four years and had a weighted average grant date fair value of ~~$1.45.~~$11.60. The fair value calculation of options granted during the nine months ended September 30, ~~2022~~2023 used the ~~follow~~following assumptions: risk free interest ~~rates~~rate of ~~1.60%~~3.66% to ~~3.55%~~4.05%, based on the U.S. Treasury yield in effect at the time of grant; expected life of six years; and volatility of ~~166%~~146% to 162% 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 nine months ended September 30, ~~2022:~~2023:


	Number of	Weighted-Average		Number of	Weighted-Average
	Options	Exercise Price		Options	Exercise Price
Outstanding at January 1, 2022	2,635,287	$	3.38
Outstanding at January 1, 2023				184,067	$	56.75
Granted	1,114,000		1.51	58,530		12.12
Forfeited	(50,575)		2.43	(8,384)		24.12
Outstanding at September 30, 2022	3,698,712	$	2.83
Exercisable at September 30, 2022	1,998,581	$	3.33
Outstanding at September 30, 2023				234,213	$	46.77
Exercisable at September 30, 2023				141,908	$	57.93

As of September 30, ~~2022,~~2023, there were ~~3,229,938~~210,096 options that were vested or expected to vest with ~~zero~~ aggregate intrinsic value of zero and a remaining weighted average contractual life of ~~8.4~~7.8 years.

Restricted Stock Awards.

Restricted stock awards are subject to vesting restrictions. If a grantee’s service with the Company is terminated prior to vesting of the restricted stock, all unvested shares shall be forfeited and returned to the Company. Upon vesting, the restricted stock award shall no longer be deemed restricted.

During the three and nine months ended September 30, ~~2021, there were 1,907,347 options~~2023, the Company granted ~~with~~2,492 restricted stock awards to directors of the Company. The awards vested immediately and had a weighted average ~~exercise price~~grant date fair value of ~~$2.89 per share, 81,594 options forfeited with a weighted average exercise price~~$5.90. As of ~~$2.83 per share~~September 30, 2023, there were 2,492 and ~~1,229 options exercised with a weighted average exercise price of $2.04.~~zero restricted stock awards that were vested and unvested, respectively.

~~Based on Company policy,~~There were no restricted stock ~~options will become 100% vested in~~awards granted during the ~~event of an employee retirement, with retirement defined as someone who has attained the age of 65~~three 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 nine months ended September 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 $0.5respectively.

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Stock Compensation.

For the three and nine months ended September 30, 2023, we recorded non-cash stock-based compensation expense for all stock awards of $0.4 million ~~which is included~~and $1.2 million, respectively, within operating expense in the accompanying statements of ~~operations during~~operations. Stock compensation expense for the three and nine months ended September 30, ~~2022.~~

2023, includes approximately $16,000, respectively, of expense related to restricted stock awards. For the three and nine months ended September 30, 2022, we recorded non-cash stock-based compensation expense for all stock awards of $0.7 million and $3.4 million, respectively, within operating expense in the accompanying statements of operations. For the three and nine months ended September 30, 2021, we recorded compensation expense for all stock awards of $0.5 million and $1.3 million, respectively, within operating expense in the accompanying statements of operation. As of September 30, ~~2022,~~2023, the unrecognized compensation expense related to unvested stock awards was ~~$3.5~~$2.5 million, which is expected to be recognized over a weighted-average period of ~~2.7~~2.1 years.

10. SALES SERVICE REVENUE, NET AND ACCOUNTS RECEIVABLE

ASC Topic 606, “Revenue from contracts with customers”

The Company follows the guidance of ASC 606 for the recognition of revenue from contracts with customers to transfer goods and services. The Company performed a comprehensive review of its existing revenue arrangements following the five-step model:

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 to a customer.

Step 4: Allocate transaction price. Sub-steps include assessing the amount of consideration to which the Company expects to be entitled in exchange for transferring the promised goods or services to the customer.

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 services provided are 30 days, unless separately negotiated.

Diagnostic testing

Control of the laboratory testing services is transferred to the customer at a point in time. 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.

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Biomarker testing and clinical project services

Control of the biomarker testing and clinical project services are transferred to the 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.

The Company 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 point 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 the lease and is included in other revenue in our condensed consolidated statements of operations. For the three months ended September 30, 2022 and 2021, revenue from sales-type leases was zero and less than $0.1 million, respectively. For the nine months ended September 30, 2022 and 2021, revenue from sales-type leases was zero and $0.1 million, respectively.

Disaggregation of Revenues by Transaction Type

We operate in one 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 nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 was as follows:


	For the Three Months Ended September 30,												For the Three Months Ended September 30,
(dollars in thousands)	Diagnostic Testing				Biomarker Testing				Total				Diagnostic Testing
	2022		2021		2022		2021		2022		2021		2023		2022
Medicaid	$	12	$	4	$	—	$	—	$	12	$	4	$	10	$	12
Medicare		936		942		—		—		936		942		1,691		936
Self-pay		109		65		—		—		109		65		39		109
Third party payers		1,003		952		—		—		1,003		952		1,998		1,003
Contract diagnostics		—		—		—		35		—		35
Service revenue, net	$	2,060	$	1,963	$	—	$	35	$	2,060	$	1,998	$	3,738	$	2,060


	For the Nine Months Ended September 30,												For the Nine Months Ended September 30,
(dollars in thousands)	Diagnostic Testing				Biomarker Testing				Total				Diagnostic Testing
	2022		2021		2022		2021		2022		2021		2023		2022
Medicaid	$	39	$	35	$	—	$	—	$	39	$	35	$	22	$	39
Medicare		2,986		2,935		—		—		2,986		2,935		3,736		2,986
Self-pay		206		181		—		—		206		181		155		206
Third party payers		3,060		2,773		—		—		3,060		2,773		4,661		3,060
Contract diagnostics		—		—		—		56		—		56
Service revenue, net	$	6,291	$	5,924	$	—	$	56	$	6,291	$	5,980	$	8,574	$	6,291

~~Table of Contents~~

Revenue from the Medicare and Medicaid programs account for a portion of the Company’s patient diagnostic service revenue. Laws and regulations governing those programs are extremely complex and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change by a material amount in the near term.

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 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

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a single agreement/requisition form. The Company derives its revenues from the following types of transactions: diagnostic testing (“Diagnostic”), revenues 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 liability, 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 revenue from deferred revenue. For the ~~period~~periods ended September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the deferred revenue was ~~$13,000~~less than $0.1 million and ~~$18,000,~~$0.1 million, 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 revenue recognition date to properly account for anticipated differences between amounts estimated in our billing system and amounts ultimately reimbursed by payers. Accordingly, the total revenue and receivables reported in our condensed consolidated financial statements are recorded at the amounts expected to be 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 our revenue are contracted and fixed fees for specific services and are recorded without an allowance for contractual discounts. The following table presents our revenues initially recognized for each associated payer class during the three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022.


	For the Three Months Ended September 30,												For the Three Months Ended September 30,
(dollars in thousands)					Contractual Allowances and				Revenues, net of Contractual								Contractual Allowances and				Revenues, net of Contractual
	Gross Revenues				adjustments				Allowances and adjustments				Gross Revenues				adjustments				Allowances and adjustments
	2022		2021		2022		2021		2022		2021		2023		2022		2023		2022		2023		2022
Medicaid	$	12	$	4	$	—	$	—	$	12	$	4	$	10	$	12	$	—	$	—	$	10	$	12
Medicare		936		942		—		—		936		942		1,693		936		(2)		—		1,691		936
Self-pay		109		65		—		—		109		65		39		109		—		—		39		109
Third party payers		3,486		3,313		(2,483)		(2,361)		1,003		952		6,956		3,486		(4,958)		(2,483)		1,998		1,003
Contract diagnostics		—		35		—		—		—		35
		4,543		4,359		(2,483)		(2,361)		2,060		1,998		8,698		4,543		(4,960)		(2,483)		3,738		2,060
Other		235		141		—		—		235		141		831		235		—		—		831		235
	$	4,778	$	4,500	$	(2,483)	$	(2,361)	$	2,295	$	2,139	$	9,529	$	4,778	$	(4,960)	$	(2,483)	$	4,569	$	2,295


	For the Nine Months Ended September 30,
(dollars in thousands)					Contractual Allowances and				Revenues, net of Contractual
	Gross Revenues				adjustments				Allowances and adjustments
	2023		2022		2023		2022		2023		2022
Medicaid	$	22	$	39	$	—	$	—	$	22	$	39
Medicare		3,738		2,986		(2)		—		3,736		2,986
Self-pay		155		206		—		—		155		206
Third party payers		16,233		10,664		(11,572)		(7,604)		4,661		3,060
		20,148		13,895		(11,574)		(7,604)		8,574		6,291
Other		2,469		977		—		—		2,469		977
	$	22,617	$	14,872	$	(11,574)	$	(7,604)	$	11,043	$	7,268

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For the Nine Months Ended September 30,
(dollars in thousands)

Contractual Allowances and

Revenues, net of Contractual

Gross Revenues

adjustments

Allowances and adjustments


2022

2021

2022

2021

2022

2021
Medicaid

$
39

$
35

$
—

$
—

$
39

$
35
Medicare

2,986

2,935

—

—

2,986

2,935
Self-pay

206

181

—

—

206

181
Third party payers

10,664

9,670

(7,604)

(6,897)

3,060

2,773
Contract diagnostics

–

56

—

—

—

56

13,895

12,877

(7,604)

(6,897)

6,291

5,980
Other

977

514

—

—

977

514

$
14,872

$
13,391

$
(7,604)

$
(6,897)

$
7,268

$
6,494

Allowance for Doubtful Accounts

The Company provides for a general allowance for collectability of services when recording net sales. The Company has adopted the policy of recognizing net sales to the extent it 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 Allowance for Doubtful Accounts. The change in the allowance for doubtful accounts is directly related to the increase in patient service revenues. The following table presents our reported revenues net of the collection allowance and adjustments for the three and nine months ended September 30, ~~2022~~2023 and ~~2021.~~2022.

For the Three Months Ended September 30,

Revenues, net of

(dollars in thousands)

Contractual Allowances

Allowances for doubtful

and adjustments

accounts

Total


2022

2021

2022

2021

2022

2021
Medicaid

$
12

$
4

$
(6)

$
(3)

$
6

$
1
Medicare

936

942

(24)

(47)

912

895
Self-pay

109

65

—

—

109

65
Third party payers

1,003

952

(50)

157

953

1,109
Contract diagnostics

—

35

—

—

—

35

2,060

1,998

(80)

107

1,980

2,105
Other

235

141

—

—

235

141

$
2,295

$
2,139

$
(80)

$
107

$
2,215

$
2,246


	For the Nine Months Ended September 30,												For the Three Months Ended September 30,
	Revenues, net of												Revenues, net of
(dollars in thousands)	Contractual Allowances				Allowances for doubtful								Contractual Allowances				Allowances for doubtful
	and adjustments				accounts				Total				and adjustments				accounts				Total
	2022		2021		2022		2021		2022		2021		2023		2022		2023		2022		2023		2022
Medicaid	$	39	$	35	$	(19)	$	(2)	$	20	$	33	$	10	$	12	$	(4)	$	(6)	$	6	$	6
Medicare		2,986		2,935		(75)		(36)		2,911		2,899		1,691		936		(20)		(24)		1,671		912
Self-pay		206		181		—		—		206		181		39		109		(3)		—		36		109
Third party payers		3,060		2,773		(153)		(42)		2,907		2,731		1,998		1,003		(24)		(50)		1,974		953
Contract diagnostics		—		56		—		—		—		56
		6,291		5,980		(247)		(80)		6,044		5,900		3,738		2,060		(51)		(80)		3,687		1,980
Other		977		514		—		—		977		514		831		235		—		—		831		235
	$	7,268	$	6,494	$	(247)	$	(80)	$	7,021	$	6,414	$	4,569	$	2,295	$	(51)	$	(80)	$	4,518	$	2,215

~~Table of Contents~~


	For the Nine Months Ended September 30,
	Revenues, net of
(dollars in thousands)	Contractual Allowances				Allowances for doubtful
	and adjustments				accounts				Total
	2023		2022		2023		2022		2023		2022
Medicaid	$	22	$	39	$	(10)	$	(19)	$	12	$	20
Medicare		3,736		2,986		(43)		(75)		3,693		2,911
Self-pay		155		206		(15)		—		140		206
Third party payers		4,661		3,060		(107)		(153)		4,554		2,907
		8,574		6,291		(175)		(247)		8,399		6,044
Other		2,469		977		—		—		2,469		977
	$	11,043	$	7,268	$	(175)	$	(247)	$	10,868	$	7,021

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 in 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 handling 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)

September 30, 2022

December 31, 2021
Medicaid

$
34

$
45
Medicare

1,064

727
Self-pay

279

139
Third party payers

1,680

2,111
Contract diagnostic services and other

91

159

$
3,148

$
3,181
Less allowance for doubtful accounts

(2,193)

(2,484)
Accounts receivable, net

$
955

$
697

~~The following table presents the roll-forward of the allowance for doubtful accounts for the nine months ended September 30, 2022.~~

Allowance for

Doubtful
(dollars in thousands)

Accounts
Balance, January 1, 2022



$
(2,484)
Collection Allowance:




Medicaid

$
(19)


Medicare

(75)


Third party payers

(153)



(247)


Bad debt expense

$
2


Total charges



(245)
Other

536
Balance, September 30, 2022



$
(2,193)

For the nine months ended September 30, 2022, the allowance for doubtful accounts was adjusted by $0.5 million due to the revaluation of fully reserved accounts receivable and customer credits at January 1, 2022. The adjustment had no effect on our net accounts receivable or total assets in our condensed consolidated balance sheets.

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The following summarizes the mix of receivables outstanding related to payer categories:


(dollars in thousands)	September 30, 2023		December 31, 2022
Medicaid	$	26	$	34
Medicare		1,671		1,124
Self-pay		258		291
Third party payers		1,495		1,888
Contract diagnostic services and other		562		53
	$	4,012	$	3,390
Less allowance for doubtful accounts		(2,529)		(2,354)
Accounts receivable, net	$	1,483	$	1,036

The following table presents the roll-forward of the allowance for doubtful accounts for the nine months ended September 30, 2023.


			Allowance for
			Doubtful
(dollars in thousands)			Accounts
Balance, January 1, 2023			$	(2,354)
Collection Allowance:
Medicaid	$	(10)
Medicare		(43)
Self-pay		(15)
Third party payers		(107)
		(175)
Bad debt expense	$	—
Total charges				(175)
Balance, September 30, 2023			$	(2,529)

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

Net sales

Accounts receivable, as of

Three Months Ended

Nine Months Ended

Three Months Ended

Nine Months Ended

September 30,

December 31,

September 30,

December 31,

2022

2021

2022

2021

2022

2021

2023

2022

2023

2022

2023

2022

Customer A

Customer B

Customer C

* represents less than 10%

11. SUBSEQUENT EVENTS

The Company has evaluated events and transactions subsequent to September 30, ~~2022~~2023 through the date of this Quarterly Report on Form 10-Q, and ~~any subsequent~~there are no other events ~~are reported below.~~

~~Nasdaq Delisting Notice~~

~~On October 28, 2022,~~to report other than what has been disclosed in the Company received a letter from The Nasdaq Stock Market LLC (“Nasdaq”), notifying it that for the past 30 consecutive business days, the closing bid price per share of its common stock was below $1.00, the minimum bid price requirement for continued listing on The Nasdaq Capital Market, as required by Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). As a result, the Company was notified by Nasdaq that it is not in compliance with the Bid Price Rule. Nasdaq has provided the Company with 180 calendar days, or until April 26, 2023, to regain compliance with the Bid Price Rule. This notification has no immediate effect on the Company’s listing on the Nasdaq Capital Market or on the trading of the Company’s common stock.

To regain compliance with the Bid Price Rule, the closing bid price of the Company’s common stock must meet or exceed $1.00 per share for a minimum of ten consecutive business days during the 180-calendar day grace period. If the Company’s common stock does not regain compliance with the Bid Price Rule during this grace period, it may be eligible for an additional period of 180 calendar days provided that the Company satisfies certain requirements. However, if Nasdaq determines that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, Nasdaq will provide notice that the Company’s securities will be subject to delisting.

The Company intends to monitor the closing bid price of its common stock and may, if appropriate, evaluate various courses of action to regain compliance with the Bid Price Rule. However, there can be no assurance that the Company will be able to regain compliance with the Bid Price Rule.condensed consolidated financial statements.

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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, foreign currency exchange rates, 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,~~ future interest and inflation costs, future economic circumstances, business strategy, industry conditions and key trends, our ability to execute our operating plans, the success of our cost savings initiatives, competitive environment and related market conditions, our ability to comply with the listing requirements of ~~The~~the Nasdaq Capital Market, expected financial and other benefits from our organizational restructuring activities, geopolitical uncertainties ~~with~~including the ongoing Russia and Ukraine conflict and the Israel-Hamas war, actions of governments and regulatory factors affecting our business including a potential U.S. federal government shutdown, projections of future earnings, revenues, synergies, accretion or other financial items, any statements of the plans, strategies and objectives of management for future operations, retaining key employees and other risks as described in our reports filed with the Securities and Exchange ~~Commission.~~Commission (the “SEC”). 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~~such 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 and our prior filings with the Securities and Exchange Commission.

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 financial statements, related notes and Management’s Discussion and Analysis included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021,~~2022, which we filed with the Securities and Exchange Commission on March 30, ~~2022.~~2023. Results for the three and nine months ended September 30, ~~2022~~2023 are not necessarily indicative of results that may be attained in the future.

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~~outdated 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~~We believe cancer diagnostics ~~as requiring~~requires a holistic approach to improve the quality of diagnostic data ~~for improved~~and achieve more accurate interpretations of the patient situation, 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.~~

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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~~diagnostic results – Better Patient Outcome – Lower Healthcare Expenditures.

To deliver ~~its~~our strategy, ~~the Company has~~we have structured ~~its~~our organization ~~in order~~ to ~~drive development of~~develop diagnostic products. Laboratory and R&D facilities located in New Haven, Connecticut and Omaha, Nebraska house ~~development~~ teams that collaborate on the development of new products and services. The Company operates CLIA laboratories in both the New Haven, Connecticut and Omaha, 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.

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~~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 determined that we hold a variable interest in the Joint Venture and that we are the primary beneficiary of the Joint Venture. Due to this determination, we consolidate the Joint Venture. See Note 2 - Summary of Significant Accounting Policies to our ~~condensed~~ consolidated financial statements appearing elsewhere in this report for further ~~discussion.~~discussion. The Joint Venture was dissolved on November 1, 2023 with an effective date of December 31, 2022.

~~Recent Developments~~

On September 1, 2022, we terminated the license agreement with Dana-Farber Cancer Institute, or Dana-Farber, pursuant to which we previously licensed our ICE COLD PCR, or ICP, technology. Management does not believe that this termination will have a material impact on our business.

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. For the nine months ended September 30, ~~2022,~~2023, the Company had a net loss of ~~$9.9~~$6.8 million and net cash used in operating activities of ~~$6.2~~$3.7 million. As of September 30, ~~2022,~~2023, the Company had an accumulated deficit of ~~$90.0~~$99.1 million and negative working capital of ~~$3.0~~$1.1 million. The 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 its business plan, including generating additional revenue, and raising additional financing to meet its debt obligations and paying liabilities arising from normal business operations when they come due.

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,~~14, 2023, the Company entered into a sales agreement with ~~A.G.P./Alliance Global Partners (“AGP”),~~AGP, pursuant to which the Company may offer and sell its common stock having aggregate sales proceeds of up to ~~$22.0~~$5.8 million, to or through AGP, as sales agent (the “AGP 2023 Sales Agreement”). ~~From~~ The sale of our shares of common stock to or through AGP, pursuant to the AGP 2023 Sales Agreement, will be made pursuant to the registration statement (the “2023 Registration Statement”) on Form S-3 (File No. 333-271277), filed by the Company with the SEC on April ~~2, 2021 through~~14, 2023, as amended by Amendment No. 1 filed by the Company with the SEC on April 25, 2023, and declared effective on April 27, 2023. As of the date the condensed consolidated financial statements were issued, we have ~~already~~ received ~~approximately $15.6 million~~less than $1 thousand in gross proceeds through the AGP 2023 Sales Agreement from the sale of ~~4,586,023~~25 shares of common ~~stock, leaving the~~stock. The Company ~~an additional $6.4~~approximately $3.8 million available for future sales pursuant to the AGP 2023 Sales Agreement.

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●

Notwithstanding the aforementioned circumstances, there remains substantial doubt about the Company’s ability to continue as a going 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 the Company will be able to successfully achieve its initiatives summarized above in order to continue as a going concern. The accompanying condensed consolidated financial statements have been

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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.

~~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, the emergence of subvariants, 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 pandemic 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 September 30, ~~2022~~2023 and ~~2021~~2022

Net Sales. Net sales were as follows:


	Dollars in Thousands								Dollars in Thousands
	Three Months Ended								Three Months Ended
	September 30,				Change				September 30,				Change
	2022		2021		$		%		2023		2022		$		%
Service revenue, net, less allowance for doubtful accounts	$	1,980	$	2,105	$	(125)	(6)	%	$	3,687	$	1,980	$	1,707	86	%
Other		235		141		94	67	%		831		235		596	254	%
Net Sales	$	2,215	$	2,246	$	(31)	(1)	%	$	4,518	$	2,215	$	2,303	104	%

Net sales for the three months ended September 30, ~~2022~~2023 were approximately ~~$2.2~~$4.5 million, ~~a decrease~~an increase of ~~less than $0.1~~$2.3 million as compared to the same period in ~~2021.~~2022. During the three months ended September 30, ~~2022,~~2023, patient diagnostic service revenue ~~decreased $0.1~~increased $1.7 million as compared to the same period in ~~2021.~~2022. This ~~decrease~~increase was due to a $0.2 million increase in allowance for doubtful accounts recorded during the three months ended September 30, 2022 as compared to the prior year period, partially offset by a $0.1 million increase in revenue from patient diagnostic cases. The case revenue increased even though wegreater number of cases processed ~~fewer cases in the current year due to better reimbursement rates achieved for the tests billed~~ in the current year period. We processed ~~1,031~~2,105 cases during the three months ended September 30, ~~2022~~2023 as compared to ~~1,103~~1,031 cases during the same period in ~~2021,~~2022, or a ~~6% decrease~~104% increase in cases. Other revenue increased by ~~$0.1~~$0.6 million for the three months ended September 30, ~~2022~~2023 as compared to the same period in ~~2021.~~2022. The other revenues were primarily related to increased sales of our ~~HSRR program.~~HemeScreen product as a result of a greater number of customers purchasing reagents during the current year period.

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 by ~~$0.1~~$0.9 million for the three months ended September 30, ~~2022~~2023 as compared to the same period in ~~2021.~~2022.

Gross Profit. Gross profit and gross margins were as follows:


	Dollars in Thousands								Dollars in Thousands
	Three Months Ended								Three Months Ended
	September 30,				Margin %				September 30,				Margin %
	2022		2021		2022		2021		2023		2022		2023		2022
Gross Profit	$	436	$	528	20	%	24	%	$	1,885	$	436	42	%	20	%

Gross margin was ~~20%~~42% of total net sales, for the three months ended September 30, ~~2022,~~2023, as compared to ~~24%~~20% of total net sales for the same period in ~~2021.~~2022. Gross profit was approximately ~~$0.4~~$1.9 million and ~~$0.5~~$0.4 million during the

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three months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The gross profit increased during the three months ended September 30, 2023, as compared to the prior year period, as a result of increases in case volume and revenue. 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.

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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 decreased by $0.3 million to $3.3 million for the three months ended September 30, 2023 as compared to the same period in 2022. The decreases included a decrease of $0.4 million in stock-based compensation expense for the three months ended September 30, 2023 and a decrease in research and development expenses of $0.1 million. These decreases were partially offset by an increase of $0.1 million in general and administrative expenses, which was due to an increase in personnel costs and legal and professional fee expenses, and an increase of $0.1 million in sales and marketing expenses due mainly to increased personnel costs associated with the increased revenue for the three months ended September 30, 2023.

Other (Expense) Income. We recorded net other expense of $7 thousand for the three months ended September 30, 2023 which was related to net interest expense. During the three months ended September 30, 2022, we recorded net other income of $0.1 million which was primarily attributable to non-cash income recorded on warrant revaluations and was partially offset by $6 thousand of net interest expense.

Results of Operations for the Nine Months Ended September 30, 2023 and 2022

Net Sales. Net sales were as follows:


	Dollars in Thousands
	Nine Months Ended
	September 30,				Change
	2023		2022		$		%
Service revenue, net, less allowance for doubtful accounts	$	8,399	$	6,044	$	2,355	39	%
Other		2,469		977		1,492	153	%
Net Sales	$	10,868	$	7,021	$	3,847	55	%

Net sales for the nine months ended September 30, 2023 were approximately $10.9 million, an increase of $3.8 million as compared to the same period in 2022. During the nine months ended September 30, 2023, patient diagnostic service revenue increased $2.4 million as compared to the same period in 2022. This increase was due to a greater number of cases processed in the current year period. We processed 4,915 cases during the nine months ended September 30, 2023 as compared to 3,037 cases during the same period in 2022, or a 62% increase in cases. Other revenue increased by $1.5 million for the nine months ended September 30, 2023 as compared to the same period in 2022. The other revenues were primarily related to increased sales of our HemeScreen product as a result of a greater number of customers purchasing reagents during the current year period.

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 by $1.8 million for the nine months ended September 30, 2023 as compared to the same period in 2022.

Gross Profit. Gross profit and gross margins were as follows:


	Dollars in Thousands
	Nine Months Ended
	September 30,				Margin %
	2023		2022		2023		2022
Gross Profit	$	4,005		1,912	37	%	27	%

Gross margin was 37% of total net sales, for the nine months ended September 30, 2023, as compared to 27% of total net sales for the same period in 2022. Gross profit was approximately $4.0 million and $1.9 million during the nine months ended September 30, 2023 and 2022, respectively. The gross profit increased during the nine months ended September 30, 2023, as compared to the prior year period, as a result of increases in case volume and revenue. We operate a fully staffed CLIA and CAP certified clinical pathology and molecular laboratory. As such, it is necessary to maintain

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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.

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~~decreased by ~~$0.7~~$1.6 million to ~~$3.7~~$10.8 million for the ~~three~~nine months ended September 30, ~~2022~~2023 as compared to the same period in ~~2021.~~2022. The ~~increase~~decrease included ana decrease of $0.2 million in general and administrative expenses, which was due to a decreases of $0.1 million in personnel costs and $0.1 million in legal and professional fee expenses, and a decrease of $2.2 million in stock-based compensation expenses for the nine months ended September 30, 2023. These decreases were partially offset by a $0.8 million increase ~~of $0.5 million~~ in sales and marketing expenses due mainly to increased personnel costs as we ~~began to expand~~expanded our product sales force ~~$0.2 million~~starting in the second half of 2022, and an increase in research and development expenses due to increased personnel costs and operating supplies and $0.2 million in stock-based compensation expenses for the three months ended September 30, 2022 as compared to the prior year. These increases were partially offset by a $0.2 million decrease in general and administrative legal expenses.

During the three months ended September 30, 2022, we began to build out our product sales and support team and, as mentioned above, we incurred increased costs in our sales and marketing expenses as compared to prior periods. We also signed distribution agreements with two major US healthcare distributors who will be marketing and selling our HemeScreen products beginning in the fourth quarter 2022. In connection with these agreements and our anticipated product revenue growth in 2023, we expect sales and marketing expenses to increase in the coming quarters as we continue to build the infrastructure necessary to support increased product sales.of less than $0.1 million.

Other (Expense) Income. We recorded net other ~~income of $0.1 million and $0.6 million~~expense $12 thousand for the ~~three~~nine months ended September 30, 2023 which was related to net interest expense. During the nine months ended September 30, 2022, ~~and 2021, respectively. The amount for both periods is~~we recorded net other income of $0.6 million which was primarily attributable to non-cash income recorded on warrant ~~revaluations.~~

~~Results of Operations for the Nine Months Ended September 30, 2022~~revaluations and ~~2021~~

~~Net Sales.~~ ~~Net sales were as follows:~~

Dollars in Thousands

Nine Months Ended

September 30,

Change


2022

2021

$

%

Service revenue, net, less allowance for doubtful accounts

$
6,044

$
5,900

$
144

2
%
Other

977

514

463

90
%
Net Sales

$
7,021

$
6,414

$
607

9
%

Net sales for the nine months ended September 30, 2022 were approximately $7.0 million, an increase of $0.6 million as compared to the same period in 2021. During the nine months ended September 30, 2022, despite the fact that we had a decrease in cases processed, patient diagnostic service revenue increased $0.1 million as compared to the same period in 2021 due to better reimbursement rates achieved for the tests billed in the current year. We processed 3,037 cases during the nine months ended September 30, 2022 as compared to 3,354 cases during the same period in 2021, or a 9% decrease in cases. Other revenue increased $0.5 million for the nine months ended September 30, 2022 as compared to the same period in 2021. The increase is the result of a $0.6 million increase in revenues related to our HSRR program,was partially offset by ~~a $0.1 million decrease in other miscellaneous revenues.~~

~~Cost~~$6 thousand 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 $0.4 million for the nine months ended September 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:~~

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Dollars in Thousands

Nine Months Ended

September 30,

Margin %


2022

2021

2022

2021

Gross Profit

$
1,912

1,747

27
%
27
%

~~Gross margin was 27% of total~~ net sales, for the nine months ended September 30, 2022 and 2021, respectively. Gross profit was approximately $1.9 million and $1.7 million during the nine months ended September 30, 2022 and 2021, respectively.

~~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 $3.9 million to $12.4 million for the nine months ended September 30, 2022 as compared to the same period in 2021. The increase included the following: an increase of $0.6 million in general and administrative expenses due to a $0.3 million increase in personnel costs, a $0.1 million increase in legal fees, and a $0.2 million increase in other costs; an increase of $0.8 million in sales and marketing expenses due primarily to increased personnel costs; an increase of $0.4 million in research and development expenses due to a $0.2 million increase in personnel costs and a $0.2 million increase in operating supplies; and, a $2.1 million increase in stock-based compensation expenses for the nine months ended September 30, 2022 as compared to the prior year.

~~Other (Expense) Income.~~ We recorded net other income of $0.6 million and $0.4 million for the nine months ended September 30, 2022 and 2021, respectively. The other income for the nine months ended September 30, 2022 is attributable to non-cash income recorded on warrant revaluations. The other income for the nine months ended September 30, 2021 includes a $0.8 million gain on forgiveness of debt related to the forgiveness of our Paycheck Protection Program Loan partially offset by $0.4 of non-cash expense recorded on warrant revaluations.

interest expense.

Liquidity and Capital Resources

Our working capital positions were as follows:


	Dollars in Thousands						September 30, 2023		December 31, 2022		Change
	September 30, 2022		December 31, 2021		Change
Current assets (including cash of $5,144 and $11,668 respectively)	$	7,418	$	13,478	$	(6,060)
Current assets (including cash of $1,562 and $3,445 respectively)							$	4,309	$	5,710	$	(1,401)
Current liabilities		4,410		4,213		197		5,454		4,361		1,093
Working capital	$	3,008	$	9,265	$	(6,257)	$	(1,145)	$	1,349	$	(2,494)

During the nine months ended September 30, 2023 we received net proceeds of $2.2 million from sale of 237,102 shares of our common stock through purchase agreements and at the market offerings. The Company has approximately $3.8 million available for future sales pursuant to the AGP 2023 Sales Agreement.

Analysis of Cash Flows – Nine Months Ended September 30, ~~2022~~2023 and ~~2021~~2022


	Nine Months Ended September 30,
	2023		2022		Change
Net cash used in operating activities	$	(3,673)	$	(6,221)	$	2,548
Net cash used in investing activities		(77)		(225)		148
Net cash provided by (used in) financing		1,867		(78)		1,945
Net change in cash	$	(1,883)	$	(6,524)	$	4,641

~~Net Change~~Cash Flows Used in ~~Cash.~~Operating Activities. ~~Cash decreased by $6.5 million and increased by $10.6~~The cash flows used in operating activities of approximately $3.7 million during the nine months ended September 30, ~~2022~~2023 included a net loss of $6.8 million, an increase in accounts receivables of $0.6 million and ~~2021, respectively.~~

~~Cash Flows Used~~a decrease in ~~Operating Activities.~~operating lease liabilities and deferred revenue of $0.3 million. These were partially offset by a decrease in inventories of $0.1 million, a decrease in other assets of $0.3 million, an increase in accounts payable of $0.5 million, an increase in accrued expenses of $0.6 million, and non-cash adjustments of $2.5 million. The non-cash adjustments included $0.2 million for the change in provision for losses on doubtful accounts. We routinely provide a reserve for doubtful accounts as a result of having limited in-network payer contracts. The other non-cash adjustments to net loss of approximately $2.3 million include, among other things, depreciation and amortization, and stock-based compensation. The cash flows used in operating activities of approximately $6.2 million during the nine months ended September 30, 2022 included a net loss of $9.9 million, an increase in accounts receivables of $0.5 million, a decrease accrued expenses and other liabilities of $0.4 million, an increase in inventories of $0.1 million and a decrease in operating lease liabilities of $0.1 million. These were partially offset by a decrease in other assets of $0.4 million, an increase in accounts payable of $0.2 million and non-cash adjustments of $4.2 million.The non-cash adjustments included $0.2 million for the change in provision for losses on doubtful accounts. We routinely provide a reserve for doubtful accounts as a result of having limited in-network payer contracts. The other non-cash adjustments to net loss of approximately $4.0 million include, among other things, depreciation and amortization, warrant revaluations and stock-based compensation. The cash flows used in operating activities of approximately $5.2 million during the nine months ended September 30, 2021 included a net loss of $6.3 million, an increase in inventories of $0.3 million, an increase in finance lease right of use assets of less than $0.1 million, an increase in other assets of $0.3 million, a decrease in

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accounts payable, accrued expenses and other liabilities of $0.4 million and a decrease in operating lease liabilities of $0.2 million. These were partially offset by a decrease in accounts receivable of $0.2 million and non-cash adjustments of $2.2 million.

Cash Flows Used In Investing Activities. Cash flows used in investing activities were ~~$0.2~~$0.1 million and ~~$0.6~~$0.2 million for the nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively, resulting from purchases of property and equipment.

Cash Flows Used in or Provided by Financing Activities. Cash flows provided by financing activities totaled $1.9 million for the nine months ended September 30, 2023, which included $2.2 million of proceeds from the issuance of common stock partially offset by payments on our long-term debt and finance lease obligations of $0.3 million. Cash flows used by financing activities totaled $0.1 million for the nine months ended September 30, 2022, which included payments on our long-term debt and finance lease obligations of $0.2 million partially offset by $0.1 million of proceeds from the issuance of common stock. ~~Cash flows provided by financing activities totaled $16.3 million for the nine months ended September 30, 2021,~~ which included proceeds of $16.2 million from the issuance of common stock and $0.4 million from warrant exercises. These were partially offset by payments on our long-term debt and finance lease obligations of $0.1 million and payments on common stock warrant liabilities of $0.1 million.

For further information regarding the Company’s future funding requirements, see the Going Concern disclosure in Note 1 of the Notes to Unaudited Condensed Consolidated Financial Statements included with this Quarterly Report on Form 10-Q.

Off-Balance Sheet Arrangements

At each of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, other than certain purchase commitments of approximately $0.7 million and $1.3 million, respectively, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. The purchase commitments are mostly for laboratory reagents used in our normal operating business.

Contractual Obligations and Commitments

No significant changes to contractual obligations and commitments occurred during the nine months ended September 30, ~~2022,~~2023, as compared to those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021,~~2022, filed with the Securities and Exchange Commission on March 30, ~~2022.~~2023.

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. Our critical accounting policies are discussed in our Annual Report on Form10-K for the fiscalyear ended December 31, ~~2021,~~2022, filed with the Securities and Exchange Commission on March 30, ~~2022.~~2023.

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 for additional information regarding recently issued accounting pronouncements.

Impact of Inflation

Inflation generally affects us with increased cost of labor and operating supplies. We do not believe that price inflation had a material adverse effect on our financial condition or results of operations during the periods presented.

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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, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, 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 the desired control objectives, and no evaluation of controls and procedures can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation, the Chief Executive Officer and ~~Interim~~ Chief Financial Officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of September 30, ~~2022.~~2023.

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 September 30, ~~2022~~2023 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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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The outcome of legal proceedings and claims brought against us are subject to significant uncertainty. Therefore, although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against us in the same reporting period for amounts in excess of management’s expectations, our financial statements for such reporting period could be materially adversely affected. In general, the resolution of a legal matter could prevent us from offering our services or products to others, could be material to our financial condition or cash flows, or both, or could otherwise adversely affect our operating results.

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. As previously reported, 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 September 30, ~~2022~~2023 and December 31, ~~2021.~~2022.

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,~~2022, 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, ~~2021,~~2022, and other filings we make with the Securities and Exchange Commission, 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 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. At September 30, 2023, we had working capital of negative $1.1 million. For the nine months ended September 30, ~~2022,~~2023, we had an operating cash flow deficit of $3.7 million and a net loss of ~~$9.9 million and had net cash used in operating activities of $6.2~~$6.8 million. ~~As of~~For the period ended September 30, ~~2022, we had working capital of $3.0. To date,~~2023, 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~~through at least 2023 as we further develop and commercialize our diagnostic technology. We also expect that our selling, ~~general and administrative expenses will~~

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general and administrative expenses will 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 may 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 September 30, ~~2022, our~~2023, we had cash ~~balance was $5.1~~of $1.6 million and our working capital was ~~approximately $3.0~~negative $1.1 million. Due to our recurring losses from operations and the expectation that we will continue to incur losses in the future, we may 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. In 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~~.terms.

~~We are not currently in compliance with the minimum bid price rule of the~~If we fail to satisfy Nasdaq ~~Capital Market,~~listing requirements and ~~if we cannot regain and maintain compliance,~~other rules, our securities may be delisted, which could negatively impact the price of our securities and hinder our ability to raise capital.

On October 28, 2022, we received a letter from the Nasdaq Capital Market (“Nasdaq”) notifying us that for the past 30 consecutive business days, the closing bid price per share of our common stock was below $1.00, the minimum bid price requirement for continued listing on Nasdaq pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). As a result, Nasdaq notified us that we were not in compliance with the Bid Price Rule. The notice from Nasdaq ~~has~~had no immediate effect on the listing of the shares of our common stock. Nasdaq provided us until April 26, 2023 to regain compliance with the Bid Price Rule.

ToOn April 27, 2023, Nasdaq notified us that we were eligible for an extension to comply with the Bid Price Rule until October 23, 2023, by which date we must regain compliance with the Bid Price Rule for at least ten consecutive business days along with compliance of other Nasdaq listing rules.

On September 21, 2023 we filed a Certificate of Amendment to our Third Amended and Restated Certificate of Incorporation with the Secretary of State of Delaware, pursuant to which we effected a 1-for-20 reverse stock split (the “Reverse Stock Split”) of our issued and outstanding common stock. The Reverse Stock Split became effective as of 5:00 p.m. (Eastern Time) on September 21, 2023, and our common stock began trading on a split-adjusted basis on Nasdaq at the market open on September 22, 2023. On October 6, 2023, we received notification from Nasdaq that for ten consecutive business days, the closing bid price of our common stock ~~must meet or exceed~~was at least $1.00 per share, ~~for a minimum of ten consecutive business days during the 180-calendar day grace period. If our common stock does not regain~~and accordingly, we regained compliance with the Bid Price Rule, ~~during this grace period,~~and that the matter is now closed.

However, we ~~may be eligible for an additional period~~cannot guarantee continued satisfaction of ~~180 calendar days provided that~~the Nasdaq listing requirements and other rules in the future. If we ~~meet certain requirements.~~

~~We are presently evaluating various courses of action~~fail to ~~regain compliance with the Bid Price Rule but there can be no assurance that we will be able~~satisfy these requirements and rules and Nasdaq were to ~~regain compliance.~~

~~If Nasdaq delists~~delist our securities, we could face significant consequences, including:

●

a limited availability for market quotations for our securities;

●

reduced liquidity with respect to our securities;

●

a determination that our common stock is a “penny stock,” which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in reduced trading;

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reduced activity in the secondary trading market for our common stock;

●

reduced or limited amount of news and analyst coverage; and

●

a decreased ability to issue additional securities or obtain additional financing in the future.

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These factors could result in lower prices and larger spreads in the bid and ask prices for our common stock and would substantially impair our ability to raise additional funds and could result in a loss of institutional investor interest and fewer development opportunities for us.

~~We face risks related to health pandemics and other widespread outbreaks of contagious disease, including COVID-19, which could significantly disrupt our operations and impact our~~Our internal control over 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 economyreporting and our ~~business, the severity~~disclosure controls and ~~duration of which are uncertain.~~ procedures may not prevent all possible errors that could occur.

The ~~COVID-19 pandemic continues to have a significant impact, both direct~~Sarbanes-Oxley Act requires that we maintain effective disclosure controls and ~~indirect, on businesses~~procedures 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 employeesinternal control over financial reporting. We are continuing to ~~work remotely outside~~develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file with the SEC is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers. Our current controls and any new controls that we develop may become inadequate, and weaknesses in our internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our ~~offices. Additionally, while our laboratory operations resumed to near-normal capacity,~~internal control over financial reporting, which we may ~~continue~~be required to ~~experience challenges~~include in ~~procuring materials~~our periodic reports that we file with the SEC under Section 404 of the Sarbanes-Oxley Act, and ~~supplies~~could harm our operating results, cause us to fail to meet our reporting obligations, or result 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 materials or manufacturing. If anyrestatement of our ~~third-party manufacturers~~prior period financial statements. If we are not able to demonstrate compliance with the Sarbanes-Oxley Act, that our internal control over financial reporting is ~~adversely impacted by the COVID-19 pandemic~~perceived as inadequate, or ~~if they divert resources or manufacturing capacity to accommodate the development or manufacture of COVID-19 vaccines, our supply chain may be disrupted, limiting our ability~~that we are unable to produce timely or accurate financial statements, investors may lose confidence in our ~~diagnostic tests.~~

~~Going forward, we expect that challenges to our business will continue. We have been~~operating results, and ~~will continue to be prudent in managing through this economic crisis. Digital connectivity is now fundamental to~~ the ~~continuity~~price of our business operations. We continually engage our employees and customers in keeping safe. We monitor adherence to governmental guidelines. We have employed remote work where possible. In this unchartered time, we recognize the need for frequent and transparent communication to all parties. common stock could decline.

We ~~depend~~are required to comply with certain of the SEC rules that implement Section 404 of the Sarbanes-Oxley Act, which requires management to certify financial and other information in our quarterly and annual reports and provide an annual management report on ~~certain technologies that~~the effectiveness of our internal control over financial reporting. This assessment needs to include the disclosure of any material weaknesses in our internal control over financial reporting identified by our management or our independent registered public accounting firm. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting or if we are ~~licensed~~unable to ~~us. We do not control these technologies~~complete our evaluation, testing, and any ~~loss~~required remediation in a timely fashion, we will be unable to assert that our internal control over financial reporting is effective.

These developments could make it more difficult for us to retain qualified members of our ~~rights~~Board of Directors, or qualified executive officers. We are presently evaluating and monitoring regulatory developments and cannot estimate the timing or magnitude of additional costs we may incur as a result. To the extent these costs are significant, our general and administrative expenses are likely to ~~them could prevent us from selling some~~increase.

The sale or issuance of our ~~products.~~common stock to, or through, AGP, or otherwise, may cause significant dilution and the sale of the shares of common stock acquired by AGP or others, or the perception that such sales may occur, could cause the price of our common stock to fall.

On ~~September 1, 2022,~~April 14, 2023, we ~~terminated the license~~entered into a sales agreement with ~~Dana-Farber~~AGP, pursuant to which we ~~previously licensed~~may offer and sell our ~~ICP technology. For more information regarding this license agreement termination, please see “Management’s Discussion and Analysis~~Common Stock, having aggregate sales proceeds of ~~Financial Condition and Results~~up to $5.8 million, to or through AGP, from time to time, in an at-the-market offering (the “2023 ATM Offering”). We are limited in the number of ~~Operations-Recent Developments”. In~~shares we can sell in the ~~future, we may enter into other license agreements with third parties for certain licensed technologies that are, or may become, relevant~~2023 ATM Offering due to the ~~products we market, or plan~~offering limitations currently applicable to ~~market. In addition, we may elect to license third party intellectual property to further our business objectives and/or~~the Company under General Instruction I.B.6. of Form S-3 and the Company’s public float as ~~needed for freedom to operate for our products. We do not and will not own the patents, patent applications or other intellectual property rights that are the subject~~ of the ~~Dana-Farber license or these other future licenses. Our rights to use these technologies~~applicable date of such sales, as well as the number of authorized and ~~employ the inventions claimed~~unissued shares available for issuance, in ~~the licensed patents, patent applications and other intellectual property rights are or will be subject to the continuation of and compliance~~accordance with the terms of ~~those licenses.~~

~~We might not be able~~the AGP 2023 Sales Agreement. Sales to, ~~obtain licenses~~or through, AGP by us could result in substantial dilution to ~~technology~~the interests of other holders of our common stock. Additionally, the sale of a substantial number of shares of our common stock, or ~~other intellectual property rights~~the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we require. Even if such licenses are obtainable, they may not be available at a reasonable cost or multiple licenses may be needed for the same product (e.g., stacked royalties). We could therefore incur substantial costs relatedmight otherwise wish to ~~royalty payments for licenses~~effect sales.

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~~obtained~~From April 14, 2023 through September 30, 2023, we received less than $1 thousand in gross proceeds through the AGP 2023 Sales Agreement from ~~third parties,~~the sale of 25 shares of Common Stock. The Company has an additional $3.8 million available for future sales pursuant to the AGP 2023 Sales Agreement.

We have issued a substantial number of warrants and equity awards from our equity plans which are exercisable into shares of our common stock which could ~~negatively affect~~result in substantial dilution to the ownership interests of our ~~gross margins. Further, we could encounter delays in product introductions,~~existing stockholders.

As of September 30, 2023, approximately 481,860 shares of our common stock were reserved for issuance upon exercise or ~~interruptions in product sales, as we develop alternative methods~~conversion of outstanding warrants. Additionally, 234,213 shares of our common stock were reserved for issuance upon exercise of outstanding stock options. The exercise or ~~products.~~

~~In some cases, we do not or may not control the prosecution, maintenance, or filing of the patents or patent applications to which we hold licenses, or the enforcement~~conversion of these ~~patents against third parties.~~securities will result in a significant increase in the number of outstanding shares and substantially dilute the ownership interests of our existing stockholders. The shares underlying the equity awards from our equity plans are registered on a Form S-8 registration statement. As a result, ~~we cannot~~upon vesting these shares can be ~~certain that drafting or prosecution~~freely exercised and sold in the public market upon issuance, subject to volume limitations applicable to affiliates. The exercise of options and the subsequent sale of the ~~licensed patents and patent applications by the licensors have been or will be conducted~~underlying common stock could cause a decline in ~~compliance with applicable laws and regulations or will result~~our stock price. As of September 30, 2023, our outstanding warrants included 15,972 shares of our common stock reserved for issuance upon exercise of pre-funded warrants, which are already included in ~~valid and enforceable patents and other intellectual property rights.~~our calculation of our weighted average common shares outstanding.

~~Inflation may continue to rise and increase our operating costs.~~

~~Over the twelve months ended June 2022, the US Bureau~~Sales of Labor and Statistics reported that inflation increased 9.1 percent as against prices from June 2021. This represents the largest 12-month advance since 1981. The inflation increase over the twelve months ended September 2022 was 8.2 percent. 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~~substantial number of shares of our common stock in the public market after the registered direct offering and concurrent private placement of June 2023 could cause our stock price to fall.

We sold 206,250 shares of common stock, pre-funded warrants to purchase 15,972 shares of common stock and warrants to purchase 444,444 shares of common stock in our June 2023 registered direct offering and concurrent private placement. The sales of a substantial number of the shares and/or ~~issuance~~the exercise and sale of ~~indebtedness, which may harm~~a substantial number of the pre-funded warrants and common warrants in the public market or the perception that these sales might occur could depress the market price of our ~~liquidity, limit~~common stock and could impair our ability to ~~grow~~raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our ~~business, or improve our operating infrastructure and restrict our ability to compete in our markets.~~

~~Our operations consume~~common stock. In addition, the sale of substantial amounts of ~~cash,~~our common stock could adversely impact the price of our common stock. The sale, or the availability for sale, of a large number of shares of our common stock in the public market could cause the price of our common stock to decline.

We may become subject to the Anti-Kickback Statute, Stark Law, False Claims Act, Civil Monetary Penalties Law and may be subject to analogous provisions of applicable state laws and could face substantial penalties if we fail to comply with such laws.

There are several federal laws addressing fraud and abuse that apply to businesses that receive reimbursement from a federal health care program. There are also a number of similar state laws covering fraud and abuse with respect to, for example, private payers, self-pay and insurance. Currently, we receive a substantial percentage of our revenue from private payers and from Medicare. Accordingly, our business is subject to federal fraud and abuse laws, such as the Anti-Kickback Statute, the Stark Law, the False Claims Act, the Civil Monetary Penalties Law and other similar laws. Moreover, we are already subject to similar state laws. We believe we have operated, and intend to continue to ~~make significant investments to support~~operate, our business ~~growth, respond~~in compliance with these laws. However, these laws are subject to ~~business challenges~~modification and changes in interpretation, and are enforced by authorities vested with broad discretion. Federal and state enforcement entities have significantly increased their scrutiny of healthcare companies and providers which has led to investigations, prosecutions, convictions and large settlements. We continually monitor developments in this area. If these laws are interpreted in a manner contrary to our interpretation or ~~opportunities, develop~~are reinterpreted or amended, or if new ~~solutions, retain~~legislation is enacted with respect to healthcare fraud and abuse, illegal remuneration, or ~~expand our current levels of personnel, improve our existing solutions, and enhance our operating infrastructure. Our future capital requirements~~similar issues, we may be ~~significantly different from~~required to restructure our ~~current estimates and~~affected operations to maintain compliance with applicable law. There can be no assurances that any such restructuring will ~~depend on many factors, including the need to:~~

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~~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~~be possible or, ~~debt financings to meet our capital needs. With uncertainty in the capital markets and other factors, such financing may~~if possible, would 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, our 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 common stock. Any debt financing secured by us in the future could involve additional restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If we are unable to obtain adequate financing or financing on terms satisfactory to us, we could face significant limitationsa material adverse effect on our ~~ability~~results of operations, financial position, or cash flows.

For more information, see “Risk Factors – Reimbursement and Regulatory Risk Relating to ~~invest in our operations~~Our Business – We may become subject to the Anti-Kickback Statute, Stark Law, False Claims Act, Civil Monetary Penalties Law and ~~otherwise suffer harm to our business.~~

may be

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subject to analogous provisions of applicable state laws and could face substantial penalties if we fail to comply with such laws” in our Annual Report on Form 10-K for the year ended December 31, 2022.

Disruptions at the FDA and other government agencies caused by funding shortages could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner, or otherwise prevent those agencies from performing normal business functions, which could negatively impact our business.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of government agencies on which our operations may rely is subject to the impacts of political events, which are inherently fluid and unpredictable.

Disruptions at the FDA and other agencies may slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which could adversely affect our business. For example, over the last several years, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and other government employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our submissions, which could have a material adverse effect on our business.

There have been no other material changes from the risk factors disclosed in “Part I, Item 1A—Risk Factors” of our most recent Annual Report. The above risk factor should be read in conjunction with the risk factors disclosed therein.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~None.~~During the three months ended September 30, 2023, we did not have any sales of unregistered securities.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

(a)

Exhibits



31.1		Certification of Principal Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended.

31.2		Certification of Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended.

32.1*		Certification of Principal Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended.

32.2*		Certification of Principal Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended.

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.

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File – formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.

* 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~~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: November ~~10, 2022~~13, 2023	By:	/S/ ILAN DANIELI
		Ilan Danieli
		Chief Executive Officer (Principal Executive Officer)


Date: November ~~10, 2022~~13, 2023	By:	/S/ MATTHEW GAGE
		Matthew Gage
		~~Interim~~ Chief Financial Officer (Principal Financial and Accounting Officer)

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