10-Q 1 prpo-20190630x10q.htm 10-Q prpo_Current_Folio_10Q

 

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 June 30, 2019

 

 

 

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

Ticker symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

PRPO

The Nasdaq Stock Market LLC

 

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      X         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      X           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 August 6, 2019, the number of shares of common stock outstanding was 6,093,369.

 

 

 

PRECIPIO, INC.

INDEX

 

 

    

Page No.

 

 

 

 

PART I. 

Financial Information

 

3

 

 

 

 

Item 1. 

Condensed Consolidated Financial Statements

 

3

 

 

 

 

 

Condensed Consolidated Balance Sheets at June 30, 2019 (unaudited) and December 31, 2018

 

3

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018 (unaudited)

 

4

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2019 and 2018 (unaudited)

 

5

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018 (unaudited)

 

7

 

 

 

 

 

Notes to the Condensed Consolidated Financial Statements (unaudited)

 

8

 

 

 

 

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

42

 

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

 

47

 

 

 

 

Item 4. 

Controls and Procedures

 

47

 

 

 

 

PART II. 

Other Information

 

49

 

 

 

 

Item 1. 

Legal Proceedings

 

49

 

 

 

 

Item 1A. 

Risk Factors

 

50

 

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

 

51

 

 

 

 

Item 5. 

Other Information

 

51

 

 

 

 

Item 6. 

Exhibits

 

51

 

 

 

 

Signatures 

 

 

53

 

 

2

PART 1.  FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements

PRECIPIO, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

 

 

 

 

 

 

 

 

 

June 30, 2019

 

 

 

    

(unaudited)

    

December 31, 2018

ASSETS

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

Cash

 

$

1,169

 

$

381

Accounts receivable, net

 

 

883

 

 

690

Inventories

 

 

189

 

 

197

Other current assets

 

 

90

 

 

525

Total current assets

 

 

2,331

 

 

1,793

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT, NET

 

 

458

 

 

496

 

 

 

 

 

 

 

OTHER ASSETS:

 

 

 

 

 

 

Operating lease right-of-use assets

 

 

627

 

 

 —

Intangibles, net

 

 

18,764

 

 

19,291

Other assets

 

 

25

 

 

25

Total assets

 

$

22,205

 

$

21,605

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

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

 

$

103

 

$

263

Current maturities of convertible notes, less debt discounts and debt issuance costs

 

 

39

 

 

4,377

Current maturities of finance lease liabilities

 

 

51

 

 

57

Current maturities of operating lease liabilities

 

 

212

 

 

 —

Accounts payable

 

 

2,671

 

 

5,169

Accrued expenses

 

 

1,655

 

 

1,940

Deferred revenue

 

 

19

 

 

49

Other current liabilities

 

 

 —

 

 

1,910

Total current liabilities

 

 

4,750

 

 

13,765

LONG TERM LIABILITIES:

 

 

 

 

 

 

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

 

 

223

 

 

253

Finance lease liabilities, less current maturities

 

 

133

 

 

155

Operating lease liabilities, less current maturities

 

 

421

 

 

 —

Common stock warrant liabilities

 

 

2,336

 

 

1,132

Derivative liabilities

 

 

 —

 

 

62

Deferred tax liability

 

 

70

 

 

70

Other long-term liabilities

 

 

45

 

 

45

Total liabilities

 

 

7,978

 

 

15,482

COMMITMENTS AND CONTINGENCIES (Note 6)

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

Preferred stock - $0.01 par value, 15,000,000 shares authorized at June 30, 2019 and December 31, 2018, 47 shares issued and outstanding at June 30, 2019 and December 31, 2018, liquidation preference at par value at June 30, 2019 and December 31, 2018

 

 

 —

 

 

 —

Common stock, $0.01 par value, 150,000,000 shares authorized at June 30, 2019 and December 31, 2018, 5,993,369 and 2,298,738 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively

(1)

 

60

 

 

23

Additional paid-in capital

(1)

 

69,428

 

 

53,796

Accumulated deficit

 

 

(55,261)

 

 

(47,696)

Total stockholders’ equity

 

 

14,227

 

 

6,123

 

 

$

22,205

 

$

21,605

(1) The common stock shares and additional paid-in capital for all periods presented reflect the one-for fifteen reverse stock split, which took effect on April 26, 2019.

 

See notes to unaudited condensed consolidated financial statements.

 

3

PRECIPIO, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

Six Months Ended June 30, 

 

 

    

2019

    

2018

    

2019

    

2018

 

SALES:

 

 

  

 

 

  

 

 

  

 

 

  

 

Service revenue, net

 

$

1,195

 

$

899

 

$

2,105

 

$

1,690

 

Clinical research grants

 

 

 –

 

 

62

 

 

 –

 

 

62

 

Other

 

 

 4

 

 

(2)

 

 

11

 

 

 3

 

Revenue, net of contractual allowances and adjustments

 

 

1,199

 

 

959

 

 

2,116

 

 

1,755

 

less allowance for doubtful accounts

 

 

(257)

 

 

(142)

 

 

(461)

 

 

(226)

 

Net sales

 

 

942

 

 

817

 

 

1,655

 

 

1,529

 

COST OF SALES:

 

 

  

 

 

  

 

 

  

 

 

  

 

Service revenue

 

 

770

 

 

585

 

 

1,445

 

 

1,273

 

Clinical research grants

 

 

 –

 

 

57

 

 

 –

 

 

57

 

Total cost of sales

 

 

770

 

 

642

 

 

1,445

 

 

1,330

 

Gross profit

 

 

172

 

 

175

 

 

210

 

 

199

 

OPERATING EXPENSES:

 

 

  

 

 

  

 

 

  

 

 

  

 

Operating expenses

 

 

2,467

 

 

2,358

 

 

4,564

 

 

4,536

 

Impairment of goodwill

 

 

 –

 

 

 –

 

 

 –

 

 

294

 

TOTAL OPERATING EXPENSES

 

 

2,467

 

 

2,358

 

 

4,564

 

 

4,830

 

OPERATING LOSS

 

 

(2,295)

 

 

(2,183)

 

 

(4,354)

 

 

(4,631)

 

OTHER INCOME (EXPENSE):

 

 

  

 

 

  

 

 

  

 

 

  

 

Interest expense, net

 

 

(178)

 

 

(48)

 

 

(201)

 

 

(56)

 

Warrant revaluation

 

 

(822)

 

 

323

 

 

(582)

 

 

584

 

Loss on modification of warrants

 

 

(1,128)

 

 

 –

 

 

(1,128)

 

 

 –

 

Derivative revaluation

 

 

(438)

 

 

(1)

 

 

(415)

 

 

(1)

 

Gain on settlement of liability, net

 

 

1,084

 

 

 6

 

 

1,251

 

 

147

 

Loss on litigation

 

 

(266)

 

 

 –

 

 

(266)

 

 

 –

 

Loss on issuance of convertible notes

 

 

(1,870)

 

 

(928)

 

 

(1,870)

 

 

(928)

 

Loss on settlement of equity instruments

 

 

 –

 

 

 –

 

 

 –

 

 

(385)

 

 

 

 

(3,618)

 

 

(648)

 

 

(3,211)

 

 

(639)

 

LOSS BEFORE INCOME TAXES

 

 

(5,913)

 

 

(2,831)

 

 

(7,565)

 

 

(5,270)

 

INCOME TAXES

 

 

 –

 

 

 –

 

 

 –

 

 

 –

 

NET LOSS

 

 

(5,913)

 

 

(2,831)

 

 

(7,565)

 

 

(5,270)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deemed dividends related to beneficial conversion feature of preferred stock and fair value of consideration issued to induce conversion of preferred stock

 

 

 –

 

 

(334)

 

 

 –

 

 

(3,848)

 

TOTAL DIVIDENDS

 

 

 –

 

 

(334)

 

 

 –

 

 

(3,848)

 

NET LOSS AVAILABLE TO COMMON STOCKHOLDERS

 

$

(5,913)

 

$

(3,165)

 

$

(7,565)

 

$

(9,118)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC AND DILUTED LOSS PER COMMON SHARE  (1)

 

$

(1.05)

 

$

(2.29)

 

$

(1.66)

 

$

(8.20)

 

BASIC AND DILUTED WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING  (1)

 

 

5,655,022

 

 

1,382,519

 

 

4,554,571

 

 

1,111,964

 

 

(1)

Net loss per share and the number of shares used in the per share calculations for all periods presented reflect the one-for fifteen reverse stock split, which took effect on April 26, 2019.

 

See notes to unaudited condensed consolidated financial statements.

4

PRECIPIO, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30, 2019

 

 

Preferred Stock

 

Common Stock

 

Additional

 

 

 

 

 

 

 

 

Outstanding

 

Par

    

Outstanding

    

Par

 

Paid-in

 

Accumulated

 

 

 

 

    

Shares

    

Value

    

Shares (1)

    

Value (1)

    

Capital (1)

    

Deficit

    

Total

Balance, January 1, 2019

 

47

 

$

 —

 

2,298,738

 

$

23

 

$

53,796

 

$

(47,696)

 

$

6,123

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(1,652)

 

 

(1,652)

Conversion of convertible notes into common stock

 

 —

 

 

 —

 

1,248,115

 

 

12

 

 

3,114

 

 

 —

 

 

3,126

Issuance of common stock in connection with purchase agreements

 

 —

 

 

 —

 

758,076

 

 

 8

 

 

1,718

 

 

 —

 

 

1,726

Write-off debt premiums (net of debt discounts) in conjunction with convertible note conversions

 

 —

 

 

 —

 

 —

 

 

 —

 

 

315

 

 

 —

 

 

315

Write-off debt derivative liability in conjunction with convertible note conversions

 

 —

 

 

 —

 

 —

 

 

 —

 

 

39

 

 

 —

 

 

39

Stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

156

 

 

 —

 

 

156

Balance, March 31, 2019

 

47

 

$

 —

 

4,304,929

 

$

43

 

$

59,138

 

$

(49,348)

 

$

9,833

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(5,913)

 

 

(5,913)

Conversion of convertible notes into common stock

 

 —

 

 

 —

 

1,138,310

 

 

12

 

 

4,134

 

 

 —

 

 

4,146

Issuance of common stock in connection with purchase agreements

 

 —

 

 

 —

 

240,000

 

 

 2

 

 

682

 

 

 —

 

 

684

Write-off debt discounts (net of debt premiums) in conjunction with convertible note conversions

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(842)

 

 

 —

 

 

(842)

Write-off debt derivative liability in conjunction with convertible note conversions

 

 —

 

 

 —

 

 —

 

 

 —

 

 

438

 

 

 —

 

 

438

Proceeds upon issuance of common stock from exercise of warrants

 

 —

 

 

 —

 

310,200

 

 

 3

 

 

1,572

 

 

 —

 

 

1,575

Write-off warrant liability in conjunction with warrant exercises

 

 —

 

 

 —

 

 —

 

 

 —

 

 

2,364

 

 

 —

 

 

2,364

Beneficial conversion feature on issuance of convertible notes

 

 —

 

 

 —

 

 —

 

 

 —

 

 

1,792

 

 

 —

 

 

1,792

Stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

151

 

 

 —

 

 

151

Payment of fractional common shares in conjunction with reverse stock split

 

 —

 

 

 —

 

(71)

 

 

 —

 

 

(1)

 

 

 —

 

 

(1)

Balance, June 30, 2019

 

47

 

$

 —

 

5,993,368

 

$

60

 

$

69,428

 

$

(55,261)

 

$

14,227

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30, 2018

 

 

Preferred Stock

 

Common Stock

 

Additional

 

 

 

 

 

 

 

 

Outstanding

 

Par

    

Outstanding

    

Par

 

Paid-in

 

Accumulated

 

 

 

 

    

Shares

    

Value

    

Shares (1)

    

Value (1)

    

Capital (1)

    

Deficit

    

Total

Balance, January 1, 2018

 

4,935

 

$

 —

 

679,774

 

$

 7

 

$

44,560

 

$

(31,542)

 

$

13,025

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(2,439)

 

 

(2,439)

Conversion of preferred stock into common stock

 

(4,888)

 

 

 —

 

431,022

 

 

 4

 

 

(4)

 

 

 —

 

 

 —

Issuance of common stock in connection with purchase agreements

 

 —

 

 

 —

 

59,457

 

 

 1

 

 

617

 

 

 —

 

 

618

Issuance of common stock in exchange for cancelation of other current liabilities

 

 —

 

 

 —

 

120,983

 

 

 1

 

 

1,896

 

 

 —

 

 

1,897

Issuance of common stock upon exercise of warrants

 

 —

 

 

 —

 

20,000

 

 

 —

 

 

225

 

 

 —

 

 

225

Stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

82

 

 

 —

 

 

82

Balance, March 31, 2018

 

47

 

$

 —

 

1,311,236

 

$

13

 

$

47,376

 

$

(33,981)

 

$

13,408

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(2,831)

 

 

(2,831)

Issuance of common stock upon exercise of warrants

 

 —

 

 

 —

 

192,733

 

 

 2

 

 

865

 

 

 —

 

 

867

Beneficial conversion feature on issuance of convertible notes

 

 —

 

 

 —

 

 —

 

 

 —

 

 

1,076

 

 

 —

 

 

1,076

Liability recorded related to equity purchase agreement repricing

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(460)

 

 

(460)

Stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

138

 

 

 —

 

 

138

Balance, June 30, 2018

 

47

 

$

 —

 

1,503,969

 

$

15

 

$

49,455

 

$

(37,272)

 

$

12,198

 

(1) The common stock shares and additional paid-in capital for all periods presented reflect the one-for fifteen reverse stock split, which took effect on April 26, 2019.

See notes to unaudited condensed consolidated financial statements

 

6

PRECIPIO, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 

 

    

2019

    

2018

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$

(7,565)

 

$

(5,270)

 

 

 

 

 

 

 

Adjustments to reconcile net loss to net cash flows used in operating activities:

 

 

  

 

 

  

Depreciation and amortization

 

 

560

 

 

680

Amortization of operating lease right-of-use asset

 

 

123

 

 

 —

Amortization of finance lease right-of-use asset

 

 

30

 

 

 —

(Accretion) amortization of deferred financing costs, debt discounts and debt premiums

 

 

(50)

 

 

10

Gain on settlement of liability, net

 

 

(1,251)

 

 

(147)

Loss on settlement of equity instrument

 

 

 —

 

 

385

Loss on litigation

 

 

266

 

 

 —

Loss on issuance of convertible notes

 

 

1,870

 

 

928

Stock-based compensation

 

 

307

 

 

220

Impairment of goodwill

 

 

 —

 

 

294

Provision for losses on doubtful accounts

 

 

463

 

 

224

Warrant revaluation

 

 

582

 

 

(584)

Loss on modification of warrants

 

 

1,128

 

 

 —

Derivative revaluation

 

 

415

 

 

 1

Changes in operating assets and liabilities:

 

 

  

 

 

  

Accounts receivable, net

 

 

(656)

 

 

(246)

Inventories, net

 

 

 8

 

 

(10)

Other assets

 

 

177

 

 

263

Accounts payable

 

 

(1,316)

 

 

(27)

Operating lease liabilities

 

 

(117)

 

 

 —

Accrued expenses and other liabilities

 

 

139

 

 

(332)

Net cash used in operating activities

 

 

(4,887)

 

 

(3,611)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

  

 

 

  

Purchase of property and equipment

 

 

(30)

 

 

(44)

Net cash used in investing activities

 

 

(30)

 

 

(44)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

  

 

 

  

Principal payments on finance lease obligations

 

 

(28)

 

 

(31)

Payment of deferred financing costs

 

 

(120)

 

 

(138)

Payment of fractional common shares in conjunction with reverse stock split

 

 

(1)

 

 

 —

Issuance of common stock, net of issuance costs

 

 

2,410

 

 

618

Proceeds from exercise of warrants

 

 

1,575

 

 

1,092

Proceeds from long-term debt

 

 

 —

 

 

300

Proceeds from convertible notes

 

 

2,150

 

 

1,660

Principal payments on convertible notes

 

 

(50)

 

 

 —

Principal payments on long-term debt

 

 

(231)

 

 

(196)

Net cash flows provided by financing activities

 

 

5,705

 

 

3,305

NET CHANGE IN CASH

 

 

788

 

 

(350)

CASH AT BEGINNING OF PERIOD

 

 

381

 

 

421

CASH AT END OF PERIOD

 

$

1,169

 

$

71

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

  

 

 

  

Cash paid during the period for interest

 

$

18

 

$

26

SUPPLEMENTAL DISCLOSURE OF CONSULTING SERVICES OR ANY OTHER NON-CASH COMMON STOCK RELATED ACTIVITY

 

 

  

 

 

  

Purchases of equipment financed through accounts payable

 

 

 —

 

 

34

Equipment financed through finance lease obligations

 

 

 —

 

 

107

Deferred debt issuance cost financed through accounts payable

 

 

 —

 

 

57

Discount of 9% on issuance of convertible bridge notes

 

 

188

 

 

164

Other current liabilities canceled in exchange for common shares

 

 

 —

 

 

1,897

Conversion of convertible debt plus interest into common stock

 

 

7,272

 

 

 —

Beneficial conversion feature on issuance of convertible notes

 

 

1,792

 

 

1,076

Initial valuation of derivative liability recorded in conjunction with issuance of convertible notes

 

 

1,858

 

 

142

Initial valuation of warrant liability recorded in conjunction with issuance of convertible notes

 

 

 —

 

 

1,205

Liabilities exchanged for convertible notes

 

 

2,150

 

 

 —

Liability recorded related to equity purchase agreement repricing

 

 

 —

 

 

460

Warrant liability canceled due to settlement of equity instruments

 

 

 —

 

 

456

Right-of-use assets obtained in exchange for lease obligations

 

 

750

 

 

 —

Amounts included in measurement of lease liabilities

 

 

144

 

 

 —

Write-off warrant liability in conjunction with warrant exercises

 

 

2,364

 

 

 —

Write-off of debt discounts (net of debt premiums) in conjunction with convertible note conversions

 

 

527

 

 

 —

Write-off of derivative liability in conjunction with convertible note conversions

 

 

477

 

 

 —

 

See notes to unaudited condensed consolidated financial statements.

7

PRECIPIO, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Ended June 30, 2019 and 2018

1. BUSINESS DESCRIPTION

Business Description.

Precipio, Inc., and its subsidiary, (“we”, “us”, “our”, the “Company” or “Precipio”) is a cancer diagnostics company providing diagnostic products and services to the oncology market. We have built and continue to develop a platform designed to eradicate the problem of misdiagnosis by harnessing the intellect, expertise and technology developed within academic institutions and delivering quality diagnostic information to physicians and their patients worldwide. We operate a cancer diagnostic laboratory located in New Haven, Connecticut and have partnered with the Yale School of Medicine to capture the expertise, experience and technologies developed within academia so that we can provide a better standard of cancer diagnostics and solve the growing problem of cancer misdiagnosis. We also operate a research and development facility in Omaha, Nebraska which will focus on further development of ICE-COLD-PCR (“ICP”), the patented technology which was exclusively licensed by us from Dana-Farber Cancer Institute, Inc. (“Dana-Farber”) at Harvard University (“Harvard”). The research and development center will focus on the development of this technology, which we believe will enable us to commercialize other technologies developed by our current and future academic partners. Our platform connects patients, physicians and diagnostic experts residing within academic institutions. Launched in 2018, the platform facilitates the following relationships:

·

Patients: patients may search for physicians in their area and consult directly with academic experts that are on the platform. Patients may also have access to new academic discoveries as they become commercially available.

·

Physicians: physicians can connect with academic experts to seek consultations on behalf of their patients and may also provide consultations for patients in their area seeking medical expertise in that physician’s relevant specialty. Physicians will also have access to new diagnostic solutions to help improve diagnostic accuracy.

·

Academic Experts: academic experts on the platform can make themselves available for patients or physicians seeking access to their expertise. Additionally, these experts have a platform available to commercialize their research discoveries.

 

Going Concern.

The condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America (“GAAP”) applicable for a going concern, which assume that the Company will realize its assets and discharge its liabilities in the ordinary course of business. The Company has incurred substantial operating losses and has used cash in its operating activities for the past several years. As of June 30, 2019, the Company had a net loss of $7.6 million, negative working capital of $2.4 million and net cash used in operating activities of $4.9 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 the Quarterly Report on Form 10‑Q 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:

·

The Company has entered into a purchase agreement with Lincoln Park (the “LP Purchase Agreement” or “Equity Line”), pursuant to which Lincoln Park has agreed to purchase from the Company up to an aggregate of $10.0 million of common stock of the Company (subject to certain limitations) from time to time over the term of the LP Purchase Agreement. The extent we rely on Lincoln Park as a source of funding will depend on a number of factors including, the prevailing market price of our common stock

8

and the extent to which we are able to secure working capital from other sources. As of the date of issuance of this Form 10-Q, we have already received $4.1 million in aggregate, including approximately $1.4 million from the sale of 328,590 shares of common stock to Lincoln Park during 2018, $2.4 million from the sale of 998,076 shares of common stock to Lincoln Park during the six months ended June 30, 2019 and $0.3 million from the sale of 100,000 shares of common stock to Lincoln Park from July 1, 2019 through the date of issuance of this Form 10-Q, leaving the Company an additional $5.9 million to draw upon in the coming year.

 

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 issuance of these condensed consolidated financial statements in the 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 over the next twelve months from the date of issuance of the 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 March 26, 2019, we were notified by the Listing Qualifications Staff of The Nasdaq Stock Market LLC that we did not meet the minimum closing bid price requirement of $1 for continued listing, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Requirement”).  On April 25, 2019 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-15 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 April 26, 2019, and our common stock began trading on a split-adjusted basis on the Nasdaq Capital Market at the market open on April 29, 2019.  On May 15, 2019, we received notification from Nasdaq that the Company’s stock price was in compliance with the Bid Price Requirement, and that the matter is now closed.

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 conversion rates set forth in these notes and the accompanying condensed consolidated financial statements.

The condensed consolidated balance sheet as of December 31, 2018 was derived from our audited balance sheet as of that date. There has been no change in the balance sheet from December 31, 2018, except for the retroactive adjustment to reflect the Reverse Stock Split. The accompanying condensed consolidated financial statements as of and for the six months ended June 30, 2019 and 2018 are unaudited and reflect all adjustments (consisting of only normal recurring adjustments) that are, in the opinion of management, 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, 2018 contained in our Annual Report Form 10‑K, filed with the Securities and Exchange Commission (the “SEC”) on April 16, 2019. The results of operations for the interim periods presented are not necessarily indicative of the results for fiscal year 2019.

Recently Adopted Accounting Pronouncements.

In February 2016, the FASB issued ASU No. 2016‑02, Leases-Topic 842. The new standard amends the recognition of lease assets and lease liabilities by lessees for those leases currently classified as operating leases and amends disclosure requirements associated with leasing arrangements. The new standard was adopted effective January 1, 2019, using a modified retrospective transition, and thus did not adjust comparative periods. The new standard provides a

9

number of optional practical expedients in transition.  The Company has elected the “package of practical expedients”, which permits it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs.  The Company did not elect the use-of-hindsight practical expedient. As a result of the adoption of Topic 842 the Company recognized approximately $0.7 million of lease liabilities and corresponding right-of-use (“ROU”) assets in its condensed consolidated balance sheet on the date of initial application. See Note 7 – Leases for additional information.

In June 2018, the FASB issued ASU 2018-07 “Compensation—Stock Compensation (Topic 718)”, which expands the scope of Topic 718 to include share based payment transactions for acquiring goods and services from non-employees. The Company adopted this guidance on January 1, 2019. The adoption of this guidance was not material to our condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU 2018-13 “Fair Value Measurement (Topic 820)”, which modifies certain disclosure requirements in Topic 820, such as the removal of the need to disclose the amount of and reason for transfers between Level 1 and Level 2 of the fair value hierarchy, and several changes related to Level 3 fair value measurements. This ASU is effective for reporting periods beginning after December 15, 2019. We are currently assessing the potential impact that the adoption of this ASU will have on our condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15 “Intangibles—Goodwill and Other—Internal Use Software (Subtopic 350-40)”, which aligns the requirements for capitalizing implementation costs incurred in a cloud computing hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software. This ASU is effective for reporting periods beginning after December 15, 2019. We are currently assessing the potential impact that the adoption of this ASU will have on our 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 is effective for reporting periods beginning after December 15, 2019. We are currently assessing the potential impact that the adoption of this ASU will have on our 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 1,760,336 and 941,882 shares of our common stock have been excluded from the computation of diluted loss per share at June 30, 2019 and 2018, respectively, because the effect is anti-dilutive due to the net loss.

The following table summarizes the outstanding securities not included in the computation of diluted net loss per share:

 

 

 

 

 

 

 

June 30, 

 

    

2019

    

2018

Stock options

 

501,242

 

227,337

Warrants

 

909,189

 

460,876

Preferred stock

 

20,888

 

10,445

Convertible notes

 

329,017

 

243,224

Total

 

1,760,336

 

941,882

 

 

10

3. LONG-TERM DEBT

Long-term debt consists of the following:

 

 

 

 

 

 

 

 

 

Dollars in Thousands

 

    

June 30, 2019

    

December 31, 2018

Department of Economic and Community Development (DECD)

 

$

263

 

$

274

DECD debt issuance costs

 

 

(26)

 

 

(28)

Financed insurance loan

 

 

32

 

 

204

September 2018 Settlement

 

 

57

 

 

66

Total long-term debt

 

 

326

 

 

516

Current portion of long-term debt