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Table of Contents

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, 2021

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 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 9, 2021, the number of shares of common stock outstanding was 22,708,192.

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 June 30, 2021 (unaudited) and December 31, 2020

3

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020 (unaudited)

4

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2021 and 2020 (unaudited)

5

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020 (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

33

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

39

Item 4.

Controls and Procedures

39

PART II.

Other Information

41

Item 1.

Legal Proceedings

41

Item 1A.

Risk Factors

41

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

43

Item 3.

Defaults Upon Senior Securities

43

Item 4.

Mine Safety Disclosures

43

Item 5.

Other Information

43

Item 6.

Exhibits

43

Signatures

44

2

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)

June 30, 2021

    

(unaudited)

    

December 31, 2020

ASSETS

CURRENT ASSETS:

Cash

$

15,701

$

2,656

Accounts receivable, net

 

443

874

Inventories

 

556

350

Other current assets

 

280

324

Total current assets

 

16,980

4,204

PROPERTY AND EQUIPMENT, NET

 

571

277

OTHER ASSETS:

Finance lease right-of-use assets, net

508

204

Operating lease right-of-use assets, net

199

306

Intangibles, net

 

15,192

15,667

Other assets

 

90

55

Total assets

$

33,540

$

20,713

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

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

$

25

$

648

Current maturities of finance lease liabilities

 

248

48

Current maturities of operating lease liabilities

 

143

225

Accounts payable

 

1,821

1,693

Accrued expenses

 

1,343

2,036

Deferred revenue

 

58

6

Total current liabilities

 

3,638

4,656

LONG TERM LIABILITIES:

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

 

174

362

Finance lease liabilities, less current maturities

 

199

116

Operating lease liabilities, less current maturities

 

64

92

Common stock warrant liabilities

 

2,207

1,325

Total liabilities

 

6,282

6,551

COMMITMENTS AND CONTINGENCIES (Note 6)

STOCKHOLDERS’ EQUITY:

Preferred stock - $0.01 par value, 15,000,000 shares authorized at June 30, 2021 and December 31, 2020, 47 shares issued and outstanding at June 30, 2021 and December 31, 2020, liquidation preference of $427 at June 30, 2021

 

Common stock, $0.01 par value, 150,000,000 shares authorized at June 30, 2021 and December 31, 2020, 22,707,063 and 17,576,916 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

 

227

176

Additional paid-in capital

 

103,029

85,523

Accumulated deficit

 

(76,029)

(71,564)

Total Precipio, Inc. stockholders’ equity

 

27,227

14,135

Noncontrolling interest in joint venture

31

27

Total stockholders’ equity

27,258

14,162

Total liabilities and stockholders’ equity

$

33,540

$

20,713

See notes to unaudited condensed consolidated financial statements.

3

Table of Contents

PRECIPIO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

(unaudited)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2021

    

2020

2021

    

2020

SALES:

 

  

 

  

  

 

  

Service revenue, net

$

2,038

$

1,616

$

3,982

$

3,074

Other revenue

 

206

 

29

 

373

 

53

Revenue, net of contractual allowances and adjustments

 

2,244

 

1,645

 

4,355

 

3,127

Adjustment for allowance for doubtful accounts

 

100

 

(337)

 

(187)

 

(603)

Net sales

 

2,344

 

1,308

 

4,168

 

2,524

COST OF SALES:

 

  

 

  

 

  

 

  

Cost of service revenue

 

1,371

 

1,137

 

2,671

 

2,228

Cost of other revenue

 

222

 

 

278

 

Total cost of sales

 

1,593

 

1,137

 

2,949

 

2,228

Gross profit

 

751

 

171

 

1,219

 

296

OPERATING EXPENSES:

 

  

 

  

 

  

 

  

Operating expenses

 

2,883

 

2,430

 

5,488

 

4,758

OPERATING LOSS

 

(2,132)

 

(2,259)

 

(4,269)

 

(4,462)

OTHER INCOME (EXPENSE):

 

  

 

  

 

  

 

  

Interest (expense) income, net

 

(1)

 

246

 

(8)

 

(467)

Warrant revaluation

 

(894)

 

(372)

 

(1,012)

 

564

Gain on settlement of liability

 

17

 

 

34

 

Gain on forgiveness of Paycheck Protection Program loan

794

Loss on extinguishment of convertible notes

 

 

 

 

(1,225)

Other income

 

 

153

 

 

153

Total other income (expense)

 

(878)

 

27

 

(192)

 

(975)

LOSS BEFORE INCOME TAXES

 

(3,010)

 

(2,232)

 

(4,461)

 

(5,437)

INCOME TAX EXPENSE

 

 

 

 

NET LOSS

 

(3,010)

 

(2,232)

 

(4,461)

 

(5,437)

Less: Net income attributable to noncontrolling interest in joint venture

(3)

(17)

(4)

(17)

Deemed dividends related to beneficial conversion feature of preferred stock and fair value of warrant down round features

 

 

 

 

(3,344)

NET LOSS ATTRIBUTABLE TO PRECIPIO, INC. COMMON STOCKHOLDERS

$

(3,013)

$

(2,249)

$

(4,465)

$

(8,798)

BASIC AND DILUTED LOSS PER COMMON SHARE

$

(0.14)

$

(0.20)

$

(0.23)

$

(0.89)

BASIC AND DILUTED WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING

 

21,041,162

 

11,353,093

 

19,461,528

 

9,862,525

See notes to unaudited condensed consolidated financial statements.

4

Table of Contents

PRECIPIO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars in thousands)

(unaudited)

For the Three Months Ended June 30, 2021

Preferred Stock

Common Stock

Additional

Noncontrolling

Outstanding

Par

    

Outstanding

    

Par

Paid-in

Accumulated

Total

Interest in

    

Shares

    

Value

    

Shares

    

Value

    

Capital

    

Deficit

    

Precipio, Inc.

    

Joint Venture

    

Total

Balance, April 1, 2021

 

47

$

 

18,132,063

$

181

$

87,365

$

(73,016)

$

14,530

$

28

$

14,558

Net (loss) income

(3,013)

(3,013)

3

(3,010)

Issuance of common stock in connection with at the market offering, net of issuance costs

4,501,000

45

14,902

14,947

14,947

Proceeds upon issuance of common stock from exercise of warrants

74,000

1

399

400

400

Stock-based compensation

 

 

 

 

363

 

 

363

 

 

363

Balance, June 30, 2021

47

$

22,707,063

$

227

$

103,029

$

(76,029)

$

27,227

$

31

$

27,258

For the Six Months Ended June 30, 2021

Preferred Stock

Common Stock

Additional

Noncontrolling

Outstanding

Par

    

Outstanding

    

Par

Paid-in

Accumulated

Total

Interest in

Shares

    

Value

    

Shares

    

Value

    

Capital

    

Deficit

    

Precipio, Inc.

    

Joint Venture

    

Total

Balance, January 1, 2021

47

$

 

17,576,916

$

176

$

85,523

$

(71,564)

$

14,135

$

27

$

14,162

Net (loss) income

 

 

 

 

 

 

(4,465)

 

(4,465)

 

4

 

(4,461)

Issuance of common stock in connection with purchase agreements

500,000

5

1,255

1,260

1,260

Issuance of common stock in connection with at the market offering, net of issuance costs

4,501,000

45

14,902

14,947

14,947

Proceeds upon issuance of common stock from exercise of warrants

74,000

1

399

400

400

Issuance of common stock for consulting services

55,147

150

150

150

Stock-based compensation

 

 

 

 

 

800

 

 

800

 

 

800

Balance, June 30, 2021

 

47

$

22,707,063

$

227

$

103,029

$

(76,029)

$

27,227

$

31

$

27,258

See notes to unaudited condensed consolidated financial statements

5

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PRECIPIO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars in thousands)

(unaudited)

For the Three Months Ended June 30, 2020

Preferred Stock

Common Stock

Additional

Noncontrolling

Outstanding

Par

    

Outstanding

    

Par

Paid-in

Accumulated

Total

Interest in

    

Shares

    

Value

    

Shares

    

Value

    

Capital

    

Deficit

    

Precipio, Inc.

    

Joint Venture

    

Total

Balance, April 1, 2020

47

$

9,506,126

$

95

$

75,334

$

(64,144)

$

11,285

$

$

11,285

Net loss

 

 

 

 

 

 

(2,249)

 

(2,249)

 

17

 

(2,232)

Conversion of convertible notes into common stock

3,480,148

35

1,788

1,823

1,823

Issuance of common stock in connection with purchase agreements

1,630,642

16

1,241

1,257

1,257

Write-off debt premiums in conjunction with convertible note conversions

333

333

333

Write-off beneficial conversion feature in conjunction with convertible note extinguishment

Stock-based compensation

 

 

 

 

 

161

 

 

161

 

 

161

Balance, June 30, 2020

 

47

$

 

14,616,916

$

146

$

78,857

$

(66,393)

$

12,610

$

17

$

12,627

For the Six Months Ended June 30, 2020

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, 2019

47

$

7,898,117

$

79

$

74,065

$

(60,939)

$

13,205

$

$

13,205

Net loss

 

 

 

 

 

 

(5,454)

 

(5,454)

 

17

 

(5,437)

Conversion of convertible notes into common stock

 

 

 

3,908,145

 

39

 

2,137

 

 

2,176

 

 

2,176

Issuance of common stock in connection with purchase agreements

2,810,654

28

2,579

2,607

2,607

Write-off beneficial conversion feature in conjunction with convertible note extinguishment

(523)

(523)

(523)

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

270

270

270

Stock-based compensation

 

 

 

 

 

329

 

 

329

 

 

329

Balance, June 30, 2020

 

47

$

 

14,616,916

$

146

$

78,857

$

(66,393)

$

12,610

$

17

$

12,627

See notes to unaudited condensed consolidated financial statements

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Table of Contents

PRECIPIO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(unaudited)

Six Months Ended June 30, 

    

2021

    

2020

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

$

(4,461)

$

(5,437)

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

 

  

 

  

Depreciation and amortization

 

549

 

564

Amortization of operating lease right-of-use asset

107

110

Amortization of finance lease right-of-use asset

22

27

Amortization of deferred financing costs, debt discounts and debt premiums

 

2

 

317

Gain on forgiveness of debt

 

(794)

 

Gain on settlement of liability

 

(34)

 

Loss on extinguishment of convertible notes

1,225

Stock-based compensation

 

800

 

329

Value of stock issued in payment of services

 

150

 

Provision for losses on doubtful accounts

 

188

 

606

Warrant revaluation

 

1,012

 

(564)

Derecognition of finance lease right-of-use asset

29

Gain from sale of fixed asset

(55)

Changes in operating assets and liabilities:

 

  

 

  

Accounts receivable

 

243

 

(1,386)

Inventories

 

(206)

 

(49)

Finance lease right-of-use assets

(35)

Other assets

 

9

 

195

Accounts payable

 

81

 

147

Operating lease liabilities

(110)

(106)

Accrued expenses and other liabilities

 

(600)

 

515

Net cash used in operating activities

 

(3,048)

 

(3,562)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

  

 

  

Purchase of property and equipment

 

(321)

 

(65)

Proceeds from sale of fixed asset

 

 

55

Net cash used in investing activities

 

(321)

 

(10)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

  

 

  

Principal payments on finance lease obligations

 

(37)

 

(33)

Issuance of common stock, net of issuance costs

16,207

2,607

Proceeds from exercise of warrants

 

400

 

Proceeds from PPP Loan

 

 

787

Principal payments on long-term debt

 

(26)

 

(284)

Payments on common stock warrant liabilities

(130)

Net cash flows provided by financing activities

 

16,414

 

3,077

NET CHANGE IN CASH

 

13,045

 

(495)

CASH AT BEGINNING OF PERIOD

 

2,656

 

848

CASH AT END OF PERIOD

$

15,701

$

353

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)

Six Months Ended June 30, 

2021

    

2020

SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid during the period for interest

$

6

$

20

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

 

  

 

  

Purchases of equipment financed through accounts payable

47

Equipment financed through finance lease obligations

 

 

21

Conversion of convertible debt, plus interest, into common stock

 

 

2,176

Write-off of beneficial conversion feature in conjunction with convertible note extinguishment

523

Finance lease right-of-use assets obtained in exchange for finance lease obligations

321

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

(270)

See notes to unaudited condensed consolidated financial statements.

8

Table of Contents

PRECIPIO, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Ended June 30, 2021 and 2020

1. BUSINESS DESCRIPTION

Business Description.

Precipio, Inc., and its subsidiaries, (collectively, “we”, “us”, “our”, the “Company” or “Precipio”) is a cancer diagnostics and reagent technology company providing diagnostic products, reagents 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 technologies developed in collaboration with academic institutions, and to deliver quality diagnostic information to physicians and their patients worldwide.

We operate a cancer diagnostic laboratory located in New Haven, Connecticut and have partnered with various academic institutions to capture the expertise, experience and technologies developed within academia to provide a better standard of cancer diagnostics and aim to solve the growing problem of cancer misdiagnosis.

In support of our platform, we also operate a research and development facility in Omaha, Nebraska which focuses on the development of various technologies, among them our internally developed proprietary products IV-Cell and HemeScreen. To expand and accelerate our product offering capabilities to commercial laboratories, the Omaha facility was recently CLIA and CAP certified. Functioning side-by-side as a CLIA operating laboratory, the Omaha facility is designed to expand our proficiencies and know-how in transitioning R&D lab generated technology into a commercial laboratory environment.

Capitalizing on this strategy, during the end of the third quarter 2020, we transitioned our HemeScreen technology from the R&D facility to the commercial laboratory setting launching the HemeScreen Reagent Rental (HSRR) program. HSRR offers oncology practices and hospitals diagnostic reagent sets of the patent-pending HemeScreen technology at significantly lower costs, while reducing the test reporting time from seven (7) to ten (10) days down to one (1) day and improving patient care. HemeScreen tests various molecular markers required for the diagnosis of certain hematologic malignancies, such as acute myeloid leukemia (AML) and myeloproliferative neoplasm (MPN). The HSRR program provides a turn-key test offering together with an option to lease-to-own diagnostic testing equipment from the Company. In most practice settings, such hematologic cancer tests are referenced out as both the cost of equipment and the cost of the diagnostic reagents are prohibitive. By utilizing our HSRR program, the customer can generate in-house testing revenues through reagent purchase contracts and economical lease-to-own rates instead of sending out the same tests to large commercial reference laboratories. The HSRR customer also benefits from obtaining faster results, thus ultimately providing better patient care.  During the first half of 2021, the Company began to recognize recurring revenues from its first few HSRR accounts.

During the fourth quarter of 2020 the Company announced it entered into an agreement with a South Korean company to market and distribute an FDA-authorized COVID-19 serology antibody test that has recently received EUA (Emergency Use Authorization). Distribution of the product will take place in the U.S. as well as in other markets worldwide.  The EUA allows the Company to distribute to all Point of Care facilities and any healthcare provider that has a National Provider Identifier (“NPI”) number.

The Company also holds an exclusive license to patented ICE-COLD-PCR (“ICP”) technology from Dana-Farber Cancer Institute, Inc., or Dana-Farber, at Harvard University. We believe that such technology will provide additional services and products directed at improving diagnostic outcomes and providing physicians with options for targeted therapies.

Joint Venture.