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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 September 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 November 10, 2021, the number of shares of common stock outstanding was 22,708,342.

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, 2021 (unaudited) and December 31, 2020

3

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

4

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

5

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 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

32

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

38

Item 4.

Controls and Procedures

38

PART II.

Other Information

40

Item 1.

Legal Proceedings

40

Item 1A.

Risk Factors

40

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

42

Item 3.

Defaults Upon Senior Securities

42

Item 4.

Mine Safety Disclosures

42

Item 5.

Other Information

42

Item 6.

Exhibits

42

Signatures

43

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)

September 30, 2021

    

(unaudited)

    

December 31, 2020

ASSETS

CURRENT ASSETS:

Cash

$

13,223

$

2,656

Accounts receivable, net

 

570

874

Inventories

 

680

350

Other current assets

 

617

324

Total current assets

 

15,090

4,204

PROPERTY AND EQUIPMENT, NET

 

813

277

OTHER ASSETS:

Finance lease right-of-use assets, net

487

204

Operating lease right-of-use assets, net

144

306

Intangibles, net

 

14,955

15,667

Other assets

 

116

55

Total assets

$

31,605

$

20,713

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

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

$

26

$

648

Current maturities of finance lease liabilities

 

244

48

Current maturities of operating lease liabilities

 

93

225

Accounts payable

 

1,572

1,693

Accrued expenses

 

1,565

2,036

Deferred revenue

 

148

6

Total current liabilities

 

3,648

4,656

LONG TERM LIABILITIES:

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

 

167

362

Finance lease liabilities, less current maturities

 

187

116

Operating lease liabilities, less current maturities

 

57

92

Common stock warrant liabilities

 

1,629

1,325

Total liabilities

 

5,688

6,551

COMMITMENTS AND CONTINGENCIES (Note 6)

STOCKHOLDERS’ EQUITY:

Preferred stock - $0.01 par value, 15,000,000 shares authorized at September 30, 2021 and December 31, 2020, 47 shares issued and outstanding at September 30, 2021 and December 31, 2020, liquidation preference of $331 at September 30, 2021

 

Common stock, $0.01 par value, 150,000,000 shares authorized at September 30, 2021 and December 31, 2020, 22,708,292 and 17,576,916 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively

 

227

176

Additional paid-in capital

 

103,542

85,523

Accumulated deficit

 

(77,889)

(71,564)

Total Precipio, Inc. stockholders’ equity

 

25,880

14,135

Noncontrolling interest in joint venture

37

27

Total stockholders’ equity

25,917

14,162

Total liabilities and stockholders’ equity

$

31,605

$

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 September 30, 

Nine Months Ended September 30, 

    

2021

    

2020

2021

    

2020

SALES:

 

  

 

  

  

 

  

Service revenue, net

$

1,998

$

1,998

$

5,980

$

5,072

Other revenue

 

141

 

51

 

514

 

104

Revenue, net of contractual allowances and adjustments

 

2,139

 

2,049

 

6,494

 

5,176

Adjustment for allowance for doubtful accounts

 

107

 

(422)

 

(80)

 

(1,025)

Net sales

 

2,246

 

1,627

 

6,414

 

4,151

COST OF SALES:

 

  

 

  

 

  

 

  

Cost of service revenue

 

1,450

 

1,244

 

4,121

 

3,472

Cost of other revenue

 

268

 

6

 

546

 

6

Total cost of sales

 

1,718

 

1,250

 

4,667

 

3,478

Gross profit

 

528

 

377

 

1,747

 

673

OPERATING EXPENSES:

 

  

 

  

 

  

 

  

Operating expenses

 

2,967

 

2,809

 

8,455

 

7,567

OPERATING LOSS

 

(2,439)

 

(2,432)

 

(6,708)

 

(6,894)

OTHER INCOME (EXPENSE):

 

  

 

  

 

  

 

  

Interest expense, net

 

(6)

 

(3)

 

(14)

 

(470)

Warrant revaluation

 

578

 

(857)

 

(434)

 

(293)

Gain on settlement of liability

 

13

 

 

47

 

Gain on forgiveness of Paycheck Protection Program loan

794

Loss on extinguishment of convertible notes

 

 

 

 

(1,225)

Other income

 

 

 

 

153

Total other income (expense)

 

585

 

(860)

 

393

 

(1,835)

LOSS BEFORE INCOME TAXES

 

(1,854)

 

(3,292)

 

(6,315)

 

(8,729)

INCOME TAX EXPENSE

 

 

 

 

NET LOSS

 

(1,854)

 

(3,292)

 

(6,315)

 

(8,729)

Less: Net income attributable to noncontrolling interest in joint venture

(6)

(10)

(10)

(27)

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

$

(1,860)

$

(3,302)

$

(6,325)

$

(12,100)

BASIC AND DILUTED LOSS PER COMMON SHARE

$

(0.08)

$

(0.21)

$

(0.31)

$

(1.01)

BASIC AND DILUTED WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING

 

22,708,034

 

16,007,025

 

20,555,588

 

11,925,642

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 September 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, July 1, 2021

 

47

$

 

22,707,063

$

227

$

103,029

$

(76,029)

$

27,227

$

31

$

27,258

Net (loss) income

(1,860)

(1,860)

6

(1,854)

Proceeds upon issuance of common stock from exercise of stock options

1,229

3

3

3

Stock-based compensation

 

 

 

 

510

 

 

510

 

 

510

Balance, September 30, 2021

47

$

22,708,292

$

227

$

103,542

$

(77,889)

$

25,880

$

37

$

25,917

For the Nine Months Ended September 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

 

 

 

 

 

 

(6,325)

 

(6,325)

 

10

 

(6,315)

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

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

Balance, September 30, 2021

 

47

$

22,708,292

$

227

$

103,542

$

(77,889)

$

25,880

$

37

$

25,917

See notes to unaudited condensed consolidated financial statements

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PRECIPIO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - CONTINUED

(Dollars in thousands)

(unaudited)

For the Three Months Ended September 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, July 1, 2020

47

$

14,616,916

$

146

$

78,857

$

(66,393)

$

12,610

$

17

$

12,627

Net loss

 

 

 

 

 

 

(3,302)

 

(3,302)

 

10

 

(3,292)

Issuance of common stock in connection with purchase agreements

2,060,000

21

4,293

4,314

4,314

Stock-based compensation

 

 

 

 

 

212

 

 

212

 

 

212

Balance, September 30, 2020

 

47

$

 

16,676,916

$

167

$

83,362

$

(69,695)

$

13,834

$

27

$

13,861

For the Nine Months Ended September 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, 2020

47

$

7,898,117

$

79

$

74,065

$

(60,939)

$

13,205

$

$

13,205

Net loss

 

 

 

 

 

 

(8,756)

 

(8,756)

 

27

 

(8,729)

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

4,870,654

49

6,872

6,921

6,921

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

 

 

 

 

 

541

 

 

541

 

 

541

Balance, September 30, 2020

 

47

$

 

16,676,916

$

167

$

83,362

$

(69,695)

$

13,834

$

27

$

13,861

See notes to unaudited condensed consolidated financial statements

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PRECIPIO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(unaudited)

Nine Months Ended September 30, 

    

2021

    

2020

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

$

(6,315)

$

(8,729)

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

 

  

 

  

Depreciation and amortization

 

835

 

829

Amortization of operating lease right-of-use asset

162

161

Amortization of finance lease right-of-use asset

44

38

Amortization of deferred financing costs, debt discounts and debt premiums

 

2

 

319

Gain on forgiveness of debt

 

(794)

 

Gain on settlement of liability

 

(47)

 

Loss on extinguishment of convertible notes

1,225

Stock-based compensation

 

1,310

 

541

Value of stock issued in payment of services

 

150

 

Provision for losses on doubtful accounts

 

82

 

1,025

Warrant revaluation

 

434

 

293

Derecognition of finance lease right-of-use asset

60

Gain from sale of fixed asset

(55)

Changes in operating assets and liabilities:

 

  

 

  

Accounts receivable

 

222

 

(1,537)

Inventories

 

(330)

 

(96)

Finance lease right-of-use assets

(41)

Other assets

 

(354)

 

(151)

Accounts payable

 

(156)

 

(107)

Operating lease liabilities

(167)

(157)

Accrued expenses and other liabilities

 

(274)

 

418

Net cash used in operating activities

 

(5,177)

 

(5,983)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

  

 

  

Purchase of property and equipment

 

(624)

 

(121)

Proceeds from sale of fixed asset

 

 

55

Net cash used in investing activities

 

(624)

 

(66)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

  

 

  

Principal payments on finance lease obligations

 

(79)

 

(47)

Issuance of common stock, net of issuance costs

16,207

6,921

Proceeds from exercise of warrants

 

400

 

Proceeds from exercise of stock options

3

Proceeds from PPP Loan

 

 

787

Principal payments on long-term debt

 

(33)

 

(302)

Payments on common stock warrant liabilities

(130)

Net cash flows provided by financing activities

 

16,368

 

7,359

NET CHANGE IN CASH

 

10,567

 

1,310

CASH AT BEGINNING OF PERIOD

 

2,656

 

848

CASH AT END OF PERIOD

$

13,223

$

2,158

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, 

2021

    

2020

SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid during the period for interest

$

22

$

25

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

 

  

 

  

Purchases of equipment financed through accounts payable

35

Equipment financed through finance lease obligations

 

 

21

Conversion of convertible debt, plus interest, into common stock

 

 

2,176

Prepaid insurance financed with loan

23

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

346

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

(270)

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, 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 knowledge 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 second quarter of 2021, the Company expanded access to its COVID-19 rapid antibody test by listing on Amazon.com’s healthcare website platform.  The antibody test is manufactured in the U.S. by Nirmidas Biotech, of California.  Precipio holds the exclusive rights to distribute this product on Amazon’s platform.  The Company’s COVID-19 rapid antibody test may currently be purchased by any medical practitioner having a National Provider Identifier (“NPI”), hospitals, medical centers and other qualified medical POC providers

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.

In April 2020, the Company formed a joint venture with Poplar Healthcare PLLC (“Poplar”), which we refer to as the “Joint Venture”. The Joint Venture was formed by the Limited Liability Company Agreement of Precipio

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Oncometrix LLC, a Delaware limited liability company (“POC”), which was entered into as of April 11, 2020 (the “Effective Date”), by and among POC, Poplar, and Precipio SPV Inc. (“Precipio SPV”), a newly formed subsidiary of the Company, together with such other persons who from time to time become party to the Limited Liability Company Agreement by executing a counterpart signature page in accordance with the terms hereof. POC was formed as a limited liability company on April 2, 2020 in accordance with the statutes and laws of the State of Delaware relating to limited liability companies. Precipio SPV was incorporated in the State of Delaware on March 10, 2020 for the sole purpose of being a party to the Joint Venture.

Under the terms of the Joint Venture, Precipio SPV has a 49% ownership interest in the Joint Venture, with Poplar having a 51 % ownership. Pursuant to the Limited Liability Company Agreement, Poplar, at any time, has the right to require Precipio SPV to purchase all, but not less than all, of Poplar’s shares in the Joint Venture (the “Poplar Put Right”). The purchase price for Poplar’s shares shall be $1.00 per share, or fifty-one dollars, and Precipio SPV would, therefore, become the sole 100% owner of the Joint Venture at the time the Poplar Put Right became effective. The Company has determined that it holds a variable interest in 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 business purpose of the Joint Venture is to facilitate and capitalize on the combined capabilities, resources and healthcare industry relationships of its members by partnering, promoting and providing oncology services to office based physicians, hospitals and medical centers. Operational services of the Joint Venture are performed entirely by its members and employees of its members. Precipio SPV’s responsibilities include product and account management services, selling & marketing, laboratory diagnostic services and general & administrative services. Precipio SPV is entitled to a management fee for the services it provides. This management fee is established through service agreements which were executed in conjunction with the formation of the Joint Venture. Poplar receives a similar fee for the billing services that it provides.

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 September 30, 2021, the Company had a net loss of $6.3 million, working capital of $11.4 million and net cash used in operating activities of $5.2 million. The Company’s ability to continue as a going concern over the next twelve months from the date of issuance of these condensed consolidated financial statements in this Quarterly Report on Form 10-Q is dependent upon a combination of achieving its business plan, including generating additional revenue and avoiding potential business disruption due to the novel coronavirus (“COVID-19”) pandemic, and raising additional financing to meet its debt obligations and paying liabilities arising from normal business operations when they come due.

To meet its current and future obligations the Company has taken the following steps to capitalize the business and successfully achieve its business plan:

On April 2, 2021, the Company entered into a sales agreement with A.G.P./Alliance Global Partners (“AGP”), pursuant to which the Company may offer and sell its common stock, par value $0.01 per share (the “Common Stock”) (the “Shares”), having aggregate sales proceeds of up to $22.0 million, to or through AGP, as sales agent (the “AGP Sales Agreement”), from time to time, in an “at the market offering” (as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended) of the Shares (the “ATM Offering”). The Company is limited in the number of shares it can sell in the ATM Offering due to the 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 offer and sales 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,

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2020, for an aggregate offering price of up to $50.0 million. From April 2, 2021 through the date the condensed consolidated financial statements were issued, we have already received approximately $15.4 million in gross proceeds through the AGP Sales Agreement from the sale of 4,501,000 shares of common stock, leaving the Company an additional $6.6 million available for future sales pursuant to the AGP Sales Agreement.

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation.

The accompanying condensed consolidated financial statements are presented in conformity with GAAP and, as of September 30, 2021 and for the three and nine months ended September 30, 2021 and 2020, 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, 2020 contained in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2021. The results of operations for the interim periods presented are not necessarily indicative of the results for fiscal year 2021.

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.

Reclassifications.

Certain prior period amounts of property and equipment, net and operating lease right-of-use (“ROU”) assets have been reclassified to finance lease right-of-use assets to conform to the current period presentation. These reclassifications had no effect on previously reported net earnings or total assets. As of December 31, 2020, the amounts reclassified to finance lease right-of-use assets were $0.2 million of property and equipment, net and less than $0.1 million of operating lease right-of-use assets.

Recently Adopted Accounting Pronouncements.

In December 2019, the FASB issued ASU 2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”, which is intended to improve consistent application and simplify the accounting for income taxes. This ASU removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance. The Company adopted this guidance on January 1, 2021. The adoption of this standard was not material to our condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted.

In July 2021, the FASB issued ASU 2021-05, Lease (Topic 842), “Lessors - Certain Leases with Variable Lease Payments”. This guidance amends the lease classification accounting for lessors for certain leases with variable lease payments that do not depend on a reference index or a rate and would have resulted in the recognition of a loss at lease commencement if classified as a sales-type or direct financing lease. Under the new guidance, these leases will be classified

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as an operating lease. The amendments are effective for fiscal years beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the impact that this ASU will have on its condensed consolidated financial statements and related disclosures.

In May 2021, the FASB issued ASU 2021-04, “Issuers 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 is currently evaluating the impact that this ASU will have on its condensed consolidated financial statements and related disclosures.

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” and subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04 and ASU 2019-05 (collectively, “Topic 326”), 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. Topic 326, 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 sha