Precipio, Inc 10-Q for FY2022 Q2
Precipio, Inc. (PRPO)
About this 10-Q
Precipio, Inc filed this 10-Q on August 11, 2022, covering the quarter ended June 30, 2022 (FY2022 Q2).
Headline figures
Quarter ended June 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2.36M
- up 0.6% from $2.34M a year earlier
- Net loss
- $2.14M
- compared with a net loss of $3.01M a year earlier
- Diluted EPS
- -$0.09
- compared with -$0.14 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended |
| |
| 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:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
| |
(Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: | ||
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
The | ||
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.
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).
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 | ◻ |
☒ | Smaller reporting company | ||
Emerging growth company | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of August 9, 2022, the number of shares of common stock outstanding was
PRECIPIO, INC. AND SUBSIDIARIES
INDEX
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| Page No. |
| | | |
| 3 | ||
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| 3 | ||
| | | |
| Condensed Consolidated Balance Sheets at June 30, 2022 (unaudited) and December 31, 2021 | | 3 |
| | | |
| | 4 | |
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| | 5 | |
| | | |
| | 7 | |
| | | |
| Notes to the Unaudited Condensed Consolidated Financial Statements | | 9 |
| | | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 28 | |
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| 33 | ||
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| 33 | ||
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| 35 | ||
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| 35 | ||
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| 35 | ||
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| 38 | ||
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| 38 | ||
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| 38 | ||
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| 38 | ||
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| 38 | ||
| | | |
| | 39 |
2
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, 2022 | | | ||
|
| (unaudited) |
| December 31, 2021 | ||
ASSETS | | | | | | |
CURRENT ASSETS: | | | | | | |
Cash | | $ | | | $ | |
Accounts receivable, net | |
| | | | |
Inventories | |
| | | | |
Other current assets | |
| | | | |
Total current assets | |
| | | | |
| | | | | | |
PROPERTY AND EQUIPMENT, NET | |
| | | | |
| | | | | | |
OTHER ASSETS: | | | | | | |
Finance lease right-of-use assets, net | | | | | | |
Operating lease right-of-use assets, net | | | | | | |
Intangibles, net | |
| | | | |
Other assets | |
| | | | |
Total assets | | $ | | | $ | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
CURRENT LIABILITIES: | | | | | | |
Current maturities of long-term debt, less debt issuance costs | | $ | | | $ | |
Current maturities of finance lease liabilities | |
| | | | |
Current maturities of operating lease liabilities | |
| | | | |
Accounts payable | |
| | | | |
Accrued expenses | |
| | | | |
Deferred revenue | |
| | | | |
Total current liabilities | |
| | | | |
LONG TERM LIABILITIES: | | | | | | |
Long-term debt, less current maturities and debt issuance costs | |
| | | | |
Finance lease liabilities, less current maturities | |
| | | | |
Operating lease liabilities, less current maturities | |
| | | | |
Common stock warrant liabilities | |
| | | | |
Total liabilities | |
| | | | |
COMMITMENTS AND CONTINGENCIES (Note 5) | | | | | | |
STOCKHOLDERS’ EQUITY: | | | | | | |
Preferred stock - $ | |
| | | ||
Common stock, $ | |
| | | | |
Additional paid-in capital | |
| | | | |
Accumulated deficit | |
| ( | | | ( |
Total Precipio, Inc. stockholders’ equity | |
| | | | |
Noncontrolling interest in joint venture | | | | | | |
Total stockholders’ equity | | | | | | |
Total liabilities and stockholders’ equity | | $ | | | $ | |
See notes to unaudited condensed consolidated financial statements.
3
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, | ||||||||
| 2022 |
| 2021 | | 2022 |
| 2021 | ||||
SALES: | |
|
| |
| | |
|
| |
|
Service revenue, net | $ | | | $ | | | $ | | | $ | |
Other revenue |
| | |
| | |
| | |
| |
Revenue, net of contractual allowances and adjustments |
| | |
| | |
| | |
| |
Adjustment for allowance for doubtful accounts |
| ( | |
| | |
| ( | |
| ( |
Net sales |
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| | |
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COST OF SALES: |
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|
Cost of service revenue |
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Cost of other revenue |
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Total cost of sales |
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Gross profit |
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OPERATING EXPENSES: |
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Operating expenses |
| | |
| | |
| | |
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OPERATING LOSS |
| ( | |
| ( | |
| ( | |
| ( |
OTHER INCOME (EXPENSE): |
|
| |
|
| |
|
| |
|
|
Interest expense, net |
| ( | |
| ( | |
| — | |
| ( |
Warrant revaluation |
| | |
| ( | |
| | |
| ( |
Gain on settlement of liability |
| – | |
| | |
| | |
| |
Gain on forgiveness of Paycheck Protection Program loan | | – | | | – | | | — | | | |
Total other income (expense) |
| | |
| ( | |
| | |
| ( |
LOSS BEFORE INCOME TAXES |
| ( | |
| ( | |
| ( | |
| ( |
INCOME TAX EXPENSE |
| | |
| | |
| | |
| |
NET LOSS |
| ( | |
| ( | |
| ( | |
| ( |
| | | | | | | | | | | |
Less: Net income attributable to noncontrolling interest in joint venture | | ( | | | ( | | | ( | | | ( |
NET LOSS ATTRIBUTABLE TO PRECIPIO, INC. COMMON STOCKHOLDERS | $ | ( | | $ | ( | | $ | ( | | $ | ( |
| | | | | | | | | | | |
BASIC AND DILUTED LOSS PER COMMON SHARE | ( | | ( | | ( | | ( | ||||
BASIC AND DILUTED WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING |
| | |
| | |
| | |
| |
See notes to unaudited condensed consolidated financial statements.
4
PRECIPIO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in thousands)
(unaudited)
| | For the Three Months Ended June 30, 2022 | |||||||||||||||||||||||
| | Preferred Stock | | Common Stock | | Additional | | | | | | | | Noncontrolling | | | | ||||||||
| | Outstanding | | Par |
| Outstanding |
| Par | | Paid-in | | Accumulated | | Total | | Interest in | | | | ||||||
|
| Shares |
| Value |
| Shares |
| Value |
| Capital |
| Deficit |
| Precipio, Inc. |
| Joint Venture |
| Total | |||||||
Balance, April 1, 2022 |
| | | $ | — |
| | | $ | | | $ | | | $ | ( | | $ | | | $ | | | $ | |
Net (loss) income | | — | | | — | | — | | | — | | | — | | | ( | | | ( | | | | | | ( |
Stock-based compensation | | — | |
| — |
| — | |
| — | |
| | |
| — | |
| | |
| — | |
| |
Balance, June 30, 2022 | | | | $ | — | | | | $ | | | $ | | | $ | ( | | $ | | | $ | | | $ | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Six Months Ended June 30, 2022 | |||||||||||||||||||||||
| | Preferred Stock | | Common Stock | | Additional | | | | | | | | Noncontrolling | | | | ||||||||
| | Outstanding | | Par |
| Outstanding |
| Par | | Paid-in | | Accumulated | | Total | | Interest in | | | | ||||||
| | Shares |
| Value |
| Shares |
| Value |
| Capital |
| Deficit |
| Precipio, Inc. |
| Joint Venture |
| Total | |||||||
Balance, January 1, 2021 | | | | $ | — |
| | | $ | | | $ | | | $ | ( | | $ | | | $ | | | $ | |
Net (loss) income |
| — | |
| — |
| — | |
| — | |
| — | |
| ( | |
| ( | |
| | |
| ( |
Proceeds upon issuance of common stock from exercise of warrants | | — | | | — | | | | | — | | | — | | | — | | | — | | | — | | | — |
Stock-based compensation |
| — | |
| — |
| — | |
| — | |
| | |
| — | |
| | |
| — | |
| |
Balance, June 30, 2022 |
| | | $ | — | | | | $ | | | $ | | | $ | ( | | $ | | | $ | | | $ | |
See notes to unaudited condensed consolidated financial statements
5
PRECIPIO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in thousands)
(unaudited)
| | For the Three Months Ended June 30, 2021 | |||||||||||||||||||||||
| | Preferred Stock | | Common Stock | | Additional | | | | | | | | Noncontrolling | | | | ||||||||
| | Outstanding | | Par |
| Outstanding |
| Par | | Paid-in | | Accumulated | | Total | | Interest in | | | | ||||||
|
| Shares |
| Value |
| Shares |
| Value |
| Capital |
| Deficit |
| Precipio, Inc. |
| Joint Venture |
| Total | |||||||
Balance, April 1, 2021 | | | | $ | — | | | | $ | | | $ | | | $ | ( | | $ | | | $ | | | $ | |
Net loss |
| — | |
| — |
| — | |
| — | |
| — | |
| ( | |
| ( | |
| | |
| ( |
Issuance of common stock in connection with at the market offering, net of issuance costs | | — | | | — | | | | | | | | | | | — | | | | | | — | | | |
Proceeds upon issuance of common stock from exercise of warrants | | — | | | — | | | | | | | | | | | — | | | | | | — | | | |
Stock-based compensation |
| — | |
| — |
| — | |
| — | |
| | |
| — | |
| | |
| — | |
| |
Balance, June 30, 2021 |
| | | $ | — |
| | | $ | | | $ | | | $ | ( | | $ | | | $ | | | $ | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | | | | $ | — | | | | $ | | | $ | | | $ | ( | | $ | | | $ | | | $ | |
Net loss |
| — | |
| — |
| — | |
| — | |
| — | |
| ( | |
| ( | |
| | |
| ( |
Issuance of common stock in connection with purchase agreements | | — | | | — | | | | | | | | | | | — | | | | | | — | | | |
Issuance of common stock in connection with at the market offering, net of issuance costs | | — | | | — | | | | | | | | | | | — | | | | | | — | | | |
Proceeds upon issuance of common stock from exercise of warrants | | — | | | — | | | | | | | | | | | — | | | | | | — | | | |
Issuance of common stock for consulting services |
| — | |
| — |
| | |
| — | |
| | |
| — | |
| | |
| — | |
| |
Stock-based compensation |
| — | |
| — |
| — | |
| — | |
| | |
| — | |
| | |
| — | |
| |
Balance, June 30, 2021 |
| | | $ | — |
| | | $ | | | $ | | | $ | ( | | $ | | | $ | | | $ | |
See notes to unaudited condensed consolidated financial statements
6
PRECIPIO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
Six Months Ended June 30, | ||||||
|
| 2022 |
| 2021 | ||
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
Net loss | | $ | ( | | $ | ( |
| | | | | | |
Adjustments to reconcile net loss to net cash flows used in operating activities: | |
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|
Depreciation and amortization | |
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| |
Amortization of operating lease right-of-use asset | | | | | | |
Amortization of finance lease right-of-use asset | | | | | | |
Amortization of deferred financing costs, debt discounts and debt premiums | |
| | |
| |
Gain on forgiveness of debt | |
| — | |
| ( |
Gain on settlement of liability | |
| ( | |
| ( |
Stock-based compensation | |
| | |
| |
Value of stock issued in payment of services | |
| — | |
| |
Provision for losses on doubtful accounts | |
| | |
| |
Warrant revaluation | |
| ( | |
| |
Derecognition of finance lease right-of-use asset | | | — | | | |
Changes in operating assets and liabilities: | |
|
| |
|
|
Accounts receivable | |
| ( | |
| |
Inventories | |
| ( | |
| ( |
Other assets | |
| | |
| |
Accounts payable | |
| | |
| |
Operating lease liabilities | | | ( | | | ( |
Accrued expenses and other liabilities | |
| ( | |
| ( |
Net cash used in operating activities | |
| ( | |
| ( |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
|
| |
|
|
Purchase of property and equipment | |
| ( | |
| ( |
Net cash used in investing activities | |
| ( | |
| ( |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
|
| |
|
|
Principal payments on finance lease obligations | |
| ( | |
| ( |
Deposits on finance lease right-of-use assets | | | — | | | ( |
Issuance of common stock, net of issuance costs | | | — | | | |
Proceeds from exercise of warrants | |
| — | |
| |
Principal payments on long-term debt | |
| ( | |
| ( |
Payments on common stock warrant liabilities | | | — | | | ( |
Net cash flows (used in) provided by financing activities | |
| ( | |
| |
NET CHANGE IN CASH | |
| ( | |
| |
CASH AT BEGINNING OF PERIOD | |
| | |
| |
CASH AT END OF PERIOD | | $ | | | $ | |
| | | | | | |
See notes to unaudited condensed consolidated financial statements.
7
PRECIPIO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS- CONTINUED
(Dollars in thousands)
(unaudited)
| | Six Months Ended June 30, | ||||
| | 2022 |
| 2021 | ||
SUPPLEMENTAL CASH FLOW INFORMATION | | | | | | |
Cash paid during the period for interest | | $ | | | $ | |
| | | | | | |
SUPPLEMENTAL DISCLOSURE OF CONSULTING SERVICES OR ANY OTHER NON-CASH COMMON STOCK RELATED ACTIVITY | |
|
| |
|
|
Purchases of equipment financed through accounts payable | | | | | | |
Operating lease right-of-use assets obtained in exchange for operating lease obligations | | | | | | — |
Finance lease right-of-use assets obtained in exchange for finance lease obligations | | | — | | | |
See notes to unaudited condensed consolidated financial statements.
8
PRECIPIO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022 and 2021
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 commercial diagnostic cancer testing technologies, lack of subspecialized expertise, and sub-optimal laboratory processes that are needed in today’s diagnostic cancer testing in order to provide accurate, rapid, and resource-effective results to treat patients. Industry studies estimate 1 in 5 blood-cancer patients are misdiagnosed. As cancer diagnostic testing has evolved from cellular to molecular (genes and exons), laboratory testing has become extremely complex, requiring even greater diagnostic precision, attention to process and a more appropriate evaluation of the abundance of genetic data to effectively gather, consider, analyze and present information for the physician for patient treatment. Precipio sees cancer diagnostics as requiring a holistic approach to improve diagnostic data for improved interpretations with the intent to reduce misdiagnoses. By delivering diagnostic products, reagents and services that improve the accuracy and efficiency of diagnostics, leading to fewer misdiagnoses, we believe patient outcomes can be improved through the selection of appropriate therapeutic options. Furthermore, we believe that better patient outcomes will have a positive impact on healthcare expenses as misdiagnoses are reduced. Better Diagnostic Results – Better Patient Outcome – Lower Healthcare Expenditures.
To deliver its strategy, the Company has structured its organization in order to drive development of diagnostic products. Laboratory and R&D facilities located in New Haven, Connecticut and Omaha, Nebraska house development teams that collaborate on 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 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.
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 six months ended June 30, 2022, the Company had a net loss of $
9
To meet its current and future obligations the Company has taken the following steps to capitalize the business and successfully achieve its business plan:
| ● | On April 2, 2021, the Company entered into a sales agreement with A.G.P./Alliance Global Partners (“AGP”), pursuant to which the Company may offer and sell its common stock having aggregate sales proceeds of up to $ |
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 June 30, 2022 and for the three and six months ended June 30, 2022 and 2021, 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 contained in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2022. The results of operations for the interim periods presented are not necessarily indicative of the results for fiscal year 2022.
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.
Recently Adopted Accounting Pronouncements.
In July 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-05, Lease (Topic 842), “Lessors - Certain Leases with Variable Lease Payments”. This guidance amends the lease classification accounting for lessors for certain leases with variable lease payments that do not depend on a reference index or a rate and would have resulted in the recognition of a 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. The Company adopted this guidance on January 1, 2022. 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
10
guidance on January 1, 2022. The adoption of this standard was not material to our condensed consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted.
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820) (“ASU 2022-03”). The amendments in ASU 2022-03 clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The amendments in this Update also require additional disclosures for equity securities subject to contractual sale restrictions. The provisions in this Update are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company does not expect to early adopt this ASU. The Company is currently assessing the potential impact that the adoption of this ASU will have on its condensed consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06 “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity and improves and amends the related EPS guidance for both Subtopics. The ASU will be effective for annual reporting periods after December 15, 2023 and interim periods within those annual periods and early adoption is permitted in annual reporting periods ending after December 15, 2020. The Company is currently assessing the potential impact that the adoption of this ASU will have on its condensed consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13 “Measurement of Credit Losses on Financial Instruments”, which replaces current methods for evaluating impairment of financial instruments not measured at fair value, including trade accounts receivable and certain debt securities, with a current expected credit loss model. This ASU, as amended, is effective for the Company for reporting periods beginning after December 15, 2022. The Company is currently assessing the potential impact that the adoption of this ASU will have on its condensed consolidated financial statements.
Loss Per Share.
Basic loss per share is calculated based on the weighted-average number of common shares outstanding during each period. Diluted loss per share includes shares issuable upon exercise of outstanding stock options, warrants or conversion rights that have exercise or conversion prices below the market value of our common stock. Options, warrants and conversion rights pertaining to
The following table summarizes the outstanding securities not included in the computation of diluted net loss per share:
| | June 30, | ||
|
| 2022 |
| 2021 |
Stock options |
| |
| |
Warrants |
| |
| |
Preferred stock |
| |
| |
Total |
| |
| |
11
Consolidation of Variable Interest Entities.
We evaluate any entity in which we are involved to determine if the entity is a VIE and if so, whether we hold a variable interest and are the primary beneficiary. We consolidate VIEs that are subject to assessment when we are deemed to be the primary beneficiary of the VIE. The process for determining whether we are the primary beneficiary of the VIE is to conclude whether we are a party to the VIE holding a variable interest that meets both of the following criteria: (1) has the power to make 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) |
| June 30, 2022 |
| December 31, 2021 | ||
Assets: | | | | | | |
Accounts receivable, net | | $ | | | $ | |
Total assets | | $ | | | $ | |
Liabilities: | | | | | | |
Accrued expenses | | $ | | | $ | |
Total liabilities | | $ | | | $ | |
Noncontrolling interest in Joint Venture | | $ | | | $ | |
Total stockholders' equity | | $ | | | $ | |
3. LONG-TERM DEBT
Long-term debt consists of the following:
| | Dollars in Thousands | ||||
|
| June 30, 2022 |
| December 31, 2021 | ||
Department of Economic and Community Development (DECD) | | $ | | | $ | |
DECD debt issuance costs | |
| ( | |
| ( |
Total long-term debt | |
| | |
| |
Current portion of long-term debt | |
| ( | |
| ( |
Long-term debt, net of current maturities | | $ | | | $ | |
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 $
Amortization of the debt issuance costs were $
12
4. ACCRUED EXPENSES OTHER CURRENT LIABILITIES.
Accrued expenses at June 30, 2022 and December 31, 2021 are as follows:
(dollars in thousands) |
| 2022 |
| 2021 | ||
Accrued expenses | | $ | | | $ | |
Accrued compensation | |
| | |
| |
Accrued franchise, property and sales and use taxes | | | | | | |
Accrued interest | |
| | |
| |
| | $ | | | $ | |
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 six months ended June 30, 2022,
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.
LITIGATIONS
CPA Global provides us with certain patent management services. On February 6, 2017, CPA Global claimed that we owed approximately $
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 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
13
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 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 $
The Company also recognizes ROU assets from finance leases in connection with its 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
The balance sheet presentation of our operating and finance leases is as follows:
(dollars in thousands) | | | | | | |
Classification on the Condensed Consolidated Balance Sheet | | June 30, 2022 | | December 31, 2021 | ||
Assets: | | | | | | |
Operating lease right-of-use assets, net | | $ | | | $ | |
Finance lease right-of-use assets, net (1) | | | | | | |
Total lease assets | | $ | | | $ | |
| | | | | | |
Liabilities: | | | | | | |
Current: | | | | | | |
Current maturities of operating lease liabilities | | $ | | | $ | |
Current maturities of finance lease liabilities | | | | | | |
Noncurrent: | | | | | | |
Operating lease liabilities, less current maturities | | | | | | |
Finance lease liabilities, less current maturities | | | | | | |
Total lease liabilities | | $ | | | $ | |
| (1) | As of June 30, 2022 and December 31, 2021, finance lease right-of-use assets included $ |
14
As of June 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 | ||||||||||||
| | | June 30, | | | December 31, | | | June 30, | | | December 31, | | | June 30, | | | December 31, |
| | | 2022 | | | 2021 | | | 2022 | | | 2021 | | | 2022 | | | 2021 |
2022 | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
2023 | |
| | | | | |
| | | | | |
| | |
| |
2024 | |
| | | | | |
| | | | | |
| | |
| |
2025 | |
| | | | | |
| | | | | |
| | |
| |
2026 | | | | | | | | | | | | | | | | | | |
Thereafter | |
| — | | | — | |
| — | | | — | |
| — | |
| — |
Total lease obligations | |
| | | | | |
| | | | | |
| | |
| |
Less: Amount representing interest | |
| ( | | | ( | |
| ( | | | ( | |
| ( | |
| ( |
Present value of net minimum lease obligations | |
| | | | | |
| | | | | |
| | |
| |
Less, current portion | |
| ( | | | ( | |
| ( | | | ( | |
| ( | |
| ( |
Long term portion | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Other information as of June 30, 2022 and December 31, 2021 is as follows:
| June 30, | | December 31, |
| 2022 | | 2021 |
Weighted-average remaining lease term (years): | | | |
Operating leases | | ||
Finance leases | | ||
Weighted-average discount rate: | | | |
Operating leases | | ||
Finance leases | |
During the six months ended June 30, 2022 and 2021, operating cash flows from operating leases was $
Operating Lease Costs
Operating lease costs were approximately $
Finance Lease Costs
Finance lease amortization and interest expenses are included in the condensed consolidated statements of operations for the three and six months ended June 30, 2022 and 2021. The balances within these accounts are less than $
15
7. STOCKHOLDERS’ EQUITY
Common Stock.
Pursuant to our Third Amended and Restated Certificate of Incorporation, as amended, we currently have
During the three and six months ended June 30, 2022, the Company issued
During the three months ended June 30, 2021, the Company issued
During the six months ended June 30, 2021, the Company issued
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 $
During the three and six months ended June 30, 2021, we received approximately
At The Market Offering Agreement
On April 2, 2021, the Company entered into a sales agreement with A.G.P./Alliance Global Partners (“AGP”), pursuant to which the Company may offer and sell its common stock, par value $
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 $
Under the AGP Sales Agreement, Shares may be sold by any method permitted by law deemed to be an “at the market offering.” AGP will also be able to sell shares of Common Stock by any other method permitted by law, including in negotiated transactions with the Company’s prior written consent. Upon delivery of a placement notice and subject to the terms and conditions of the AGP Sales Agreement, AGP is required to use its commercially reasonable efforts consistent with its normal trading and sales practices, applicable state and federal law, rules and regulations, and the rules of The Nasdaq Capital Market to sell the Shares from time to time based upon the Company’s instructions, including any price, time or size limits specified by the Company. AGP is not under any obligation to purchase any of the Shares on a
16
principal basis pursuant to the AGP Sales Agreement, except as otherwise agreed by AGP and the Company in writing and expressly set forth in a placement notice. AGP’s obligations to sell the Shares under the AGP Sales Agreement are subject to satisfaction of certain conditions, including customary closing conditions. The Company is not obligated to make any sales of Shares under the AGP Sales Agreement and any determination by the Company to do so will be dependent, among other things, on market conditions and the Company’s capital raising needs.
The Company has agreed to pay AGP a cash fee of
During the three and six months ended June 30, 2022, there were
Preferred Stock.
The Company’s Board of Directors is authorized to issue up to
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
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
17
Common Stock Warrants.
The following represents a summary of the warrants outstanding as of June 30, 2022:
|
| |
| |
| Underlying |
| Exercise | |
| | Issue Year | | Expiration | | Shares | | Price | |
Warrants | | | | | | | | | |
(1) |
| 2017 |
| August 2022 |
| |
| $ | |
(2) |
| 2017 |
| August 2022 |
| |
| $ | |
(3) |
| 2017 |
| August 2022 |
| |
| $ | |
(3) | | 2017 | | August 2022 | | | | $ | |
(4) |
| 2017 |
| August 2022 |
| |
| $ | |
(4) | | 2017 | | August 2022 | | | | $ | |
(5) |
| 2017 |
| October 2022 |
| |
| $ | |
(6) | | 2018 | | October 2022 | | | | $ | |
(7) | | 2018 | | April 2023 | | | | $ | |
(7) | | 2018 | | April 2023 | | | | $ | |
(8) | | 2018 | | October 2022 | | | | $ | |
(9) | | 2018 | | July 2023 | | | | $ | |
(9) | | 2018 | | July 2023 | | | | $ | |
(9) | | 2018 | | August 2023 | | | | $ | |
(9) | | 2018 | | August 2023 | | | | $ | |
(9) | | 2018 | | September 2023 | | | | $ | |
(9) | | 2018 | | September 2023 | | | | $ | |
(10) | | 2018 | | November 2023 | | | | $ | |
(10) | | 2018 | | December 2023 | | | | $ | |
(11) | | 2019 | | April 2024 | | | | $ | |
(12) | | 2019 | | May 2024 | | | | $ | |
|
|
|
|
|
| |
| |
|
| (1) | These warrants were issued in August 2017. |
| (2) | These warrants were issued in August 2017. |
| (3) | These warrants were issued in connection with the conversion of our Series A Senior stock. |
| (4) | These warrants were issued in connection with the conversion of convertible bridge notes. |
| (5) | These warrants were issued in connection with the waiver of default the Company received in the fourth quarter of 2017 in connection with the Convertible Promissory Notes. |
| (6) | These warrants were issued in connection with certain debt obligation settlement agreements. |
| (7) | These warrants were issued in connection with a 2018 securities purchase agreement, as amended, (the “2018 Note Agreement”). |
| (8) | These warrants were issued in connection with the 2018 Note Agreement. |
| (9) | These warrants were issued in connection with the 2018 Note Agreement. |
| (10) | These warrants were issued in connection with the 2018 Note Agreement. |
| (11) | These warrants were issued in connection with the 2018 Note Agreement. |
| (12) | These warrants were issued in connection with convertible notes issued in May 2019 (the “May 2019 Bridge Notes”). |
During the three months ended June 30, 2022 and 2021,
During the six months ended June 30, 2021,
There were
18
$
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
8. FAIR VALUE
FASB guidance on fair value measurements, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements for our financial assets and liabilities, as well as for other assets and liabilities that are carried at fair value on a recurring basis in our condensed consolidated financial statements.
FASB guidance establishes a three-level fair value hierarchy based upon the assumptions (inputs) used to price assets or liabilities. The three levels of inputs used to measure fair value are as follows:
Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2—Observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets; and
Level 3—Unobservable inputs reflecting our own assumptions and best estimate of what inputs market participants would use in pricing the asset or liability.
Common Stock Warrant Liabilities.
Certain of our issued and outstanding warrants to purchase shares of common stock do not qualify to be treated as equity and, accordingly, are recorded as a liability. 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,
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 June 30, 2022, Bridge Note Warrant Liabilities outstanding were the result of convertible note issuances on eight different 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
19
Liabilities include: remaining life to maturity of
During the three and six months ended June 30, 2022 and 2021, the change in the fair value of the warrant liabilities measured using significant unobservable inputs (Level 3) were comprised of the following:
Dollars in Thousands | | | |||||||
| | | | | Three Months Ended June 30, 2022 | ||||
|
| |
| Bridge Note |
| Total Warrant | |||
| | | | Warrant Liabilities | | Liabilities | |||
Beginning balance at April 1 | | | | | $ | | | $ | |
Total gains: | |
| | |
|
| |
|
|
Revaluation recognized in earnings | | | | | | ( | | | ( |
Balance at June 30 | | | | | $ | | | $ | |
| | | | | | | | | |
| | | | | Three Months Ended June 30, 2021 | ||||
|
| |
| Bridge Note |
| Total Warrant | |||
| | | | Warrant Liabilities | | Liabilities | |||
Beginning balance at April 1 | | | | | $ | | | $ | |
Total losses: | | | | |
|
| |
|
|
Revaluation recognized in earnings | | | | | | | | | |
Deductions – warrant liability settlement | | | | |
| – | |
| – |
Balance at June 30 | | | | | $ | | | $ | |
Dollars in Thousands | | | |||||||
| | | | | Six Months Ended June 30, 2022 | ||||
| | | | Bridge Note | | Total Warrant | |||
|
| |
| Warrant Liabilities |
| Liabilities | |||
Beginning balance at January 1 | | | | | $ | | | $ | |
Total losses: | | | | |
|
| |
|
|
Revaluation recognized in earnings | | | | | | ( | | | ( |
Deductions – warrant exercises and write-offs | | | | | | – | | | – |
Balance at June 30 | | | | | $ | | | $ | |
| | | | | | | | | |
| | Six Months Ended June 30, 2021 | |||||||
| | 2016 Warrant | | Bridge Note | | Total Warrant | |||
|
| Liability |
| Warrant Liabilities |
| Liabilities | |||
Beginning balance at January 1 | | $ | | | $ | | | $ | |
Total losses: | |
|
| |
|
| |
|
|
Revaluation recognized in earnings | | | – | | | | | | |
Deductions – warrant liability settlement | | | ( | | | – | | | ( |
Balance at June 30 | | $ | – | | $ | | | $ | |
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
20
immediately preceding December 31, or such lessor number of shares determined by the Company’s Board of Directors or Compensation Committee. During the six months ended June 30, 2022, the shares authorized for issuance increased by
Stock Options.
The Company accounts for all stock-based compensation payments to employees and directors, including grants of employee stock options, at fair value at the date of grant and expenses the benefit in operating expense in the condensed consolidated statements of operations over the service period of the awards. The Company records the expense for stock-based compensation awards subject to performance-based milestone vesting over the remaining service period when management determines that achievement of the milestone is probable based on the expected satisfaction of the performance conditions as of the reporting date. The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option pricing model, which requires various assumptions including estimating stock price volatility, expected life of the stock option, risk free interest rate and estimated forfeiture rate.
During the six months ended June 30, 2022, the Company granted stock options to purchase up to
The following table summarizes stock option activity under our plans during the six months ended June 30, 2022:
|
| Number of |
| Weighted-Average | |
| | Options | | Exercise Price | |
Outstanding at January 1, 2022 |
| | | $ | |
Granted |
| | |
| |
Forfeited |
| ( | |
| |
Outstanding at June 30, 2022 |
| | | $ | |
Exercisable at June 30, 2022 |
| | | $ | |
As of June 30, 2022, there were
During the six months ended June 30, 2021, there were
Based on Company policy, stock options will become
For the three and six months ended June 30, 2022, we recorded non-cash stock-based compensation expense for all stock awards of $
21
of $
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.
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.
22
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 ended June 30, 2022 and 2021, revenue from sales-type leases was
Disaggregation of Revenues by Transaction Type
We operate in
| | For the Three Months Ended June 30, | ||||||||||||||||
(dollars in thousands) | | Diagnostic Testing | | Biomarker Testing | | Total | ||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
Medicaid | | $ | | | $ | | | $ | — | | $ | — | | $ | | | $ | |
Medicare | |
| | |
| | |
| — | |
| — | |
| | |
| |
Self-pay | |
| | |
| | |
| — | |
| — | |
| | |
| |
Third party payers | |
| | |
| | |
| — | |
| — | |
| | |
| |
Contract diagnostics | |
| — | |
| — | |
| — | |
| | |
| — | |
| |
Service revenue, net | | $ | | | $ | | | $ | — | | $ | | | $ | | | $ | |
| | For the Six Months Ended June 30, | ||||||||||||||||
(dollars in thousands) | | Diagnostic Testing | | Biomarker Testing | | Total | ||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
Medicaid | | $ | | | $ | | | $ | — | | $ | — | | $ | | | $ | |
Medicare | |
| | |
| | |
| — | |
| — | |
| | |
| |
Self-pay | |
| | |
| | |
| — | |
| — | |
| | |
| |
Third party payers | |
| | |
| | |
| — | |
| — | |
| | |
| |
Contract diagnostics | |
| — | |
| — | |
| — | |
| | |
| — | |
| |
Service revenue, net | | $ | | | $ | | | $ | — | | $ | | | $ | | | $ | |
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.
23
Revenue Recognition
Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price using the expected value method based on historical experience. The Company does not typically enter arrangements where multiple contracts can be combined as the terms regarding services are generally found within a single agreement/requisition form. The Company derives its revenues from the following types of transactions: diagnostic testing (“Diagnostic”), 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 ended June 30, 2022 and December 31, 2021, the deferred revenue was $
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 six months ended June 30, 2022 and 2021.
| | For the Three Months Ended June 30, | ||||||||||||||||
(dollars in thousands) | | | | Contractual Allowances and | | Revenues, net of Contractual | ||||||||||||
| | Gross Revenues | | adjustments | | Allowances and adjustments | ||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
Medicaid | | $ | | | $ | | | $ | — | | $ | — | | $ | | | $ | |
Medicare | |
| | |
| | |
| — | |
| — | |
| | |
| |
Self-pay | |
| | |
| | |
| — | |
| — | |
| | |
| |
Third party payers | |
| | |
| | |
| ( | |
| ( | |
| | |
| |
Contract diagnostics | |
| — | |
| | |
| — | |
| — | |
| — | |
| |
| |
| | |
| | |
| ( | |
| ( | |
| | |
| |
Other | |
| | |
| | |
| — | |
| — | |
| | |
| |
| | $ | | | $ | | | $ | ( | | $ | ( | | $ | | | $ | |
24
| | For the Six Months Ended June 30, | ||||||||||||||||
(dollars in thousands) | | | | Contractual Allowances and | | Revenues, net of Contractual | ||||||||||||
| | Gross Revenues | | adjustments | | Allowances and adjustments | ||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
Medicaid | | $ | | | $ | | | $ | — | | $ | — | | $ | | | $ | |
Medicare | |
| | |
| | |
| — | |
| — | |
| | |
| |
Self-pay | |
| | |
| | |
| — | |
| — | |
| | |
| |
Third party payers | |
| | |
| | |
| ( | |
| ( | |
| | |
| |
Contract diagnostics | |
| – | |
| | |
| — | |
| — | |
| — | |
| |
| |
| | |
| | |
| ( | |
| ( | |
| | |
| |
Other | |
| | |
| | |
| — | |
| — | |
| | |
| |
| | $ | | | $ | | | $ | ( | | $ | ( | | $ | | | $ | |
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 six months ended June 30, 2022 and 2021.
| | For the Three Months Ended June 30, | ||||||||||||||||
| | Revenues, net of | | | |
| ||||||||||||
(dollars in thousands) | | Contractual Allowances | | Allowances for doubtful | |
| ||||||||||||
| | and adjustments | | accounts | | Total | ||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
Medicaid | | $ | | | $ | | | $ | ( | | $ | | | $ | | | $ | |
Medicare | |
| | |
| | |
| ( | |
| | |
| | |
| |
Self-pay | |
| | |
| | |
| — | |
| — | |
| | |
| |
Third party payers | |
| | |
| | |
| ( | |
| ( | |
| | |
| |
Contract diagnostics | |
| — | |
| | |
| — | |
| — | |
| — | |
| |
| |
| | |
| | |
| ( | |
| | |
| | |
| |
Other | |
| | |
| | |
| — | |
| — | |
| | |
| |
| | $ | | | $ | | | $ | ( | | $ | | | $ | | | $ | |
| | For the Six Months Ended June 30, | ||||||||||||||||
| | Revenues, net of | | | |
| ||||||||||||
(dollars in thousands) | | Contractual Allowances | | Allowances for doubtful | |
| ||||||||||||
| | and adjustments | | accounts | | Total | ||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
Medicaid | | $ | | | $ | | | $ | ( | | $ | | | $ | | | $ | |
Medicare | |
| | |
| | |
| ( | |
| | |
| | |
| |
Self-pay | |
| | |
| | |
| — | |
| — | |
| | |
| |
Third party payers | |
| | |
| | |
| ( | |
| ( | |
| | |
| |
Contract diagnostics | |
| — | |
| | |
| — | |
| — | |
| — | |
| |
| |
| | |
| | |
| ( | |
| ( | |
| | |
| |
Other | |
| | |
| | |
| — | |
| — | |
| | |
| |
| | $ | | | $ | | | $ | ( | | $ | ( | | $ | | | $ | |
25
Costs to Obtain or Fulfill a Customer Contract
Sales commissions are expensed when incurred because the amortization period would have been one year or less. These costs are recorded in operating expenses 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) |
| June 30, 2022 |
| December 31, 2021 | ||
Medicaid | | $ | | | $ | |
Medicare | |
| | |
| |
Self-pay | |
| | |
| |
Third party payers | |
| | |
| |
Contract diagnostic services and other | |
| | |
| |
| | $ | | | $ | |
Less allowance for doubtful accounts | |
| ( | |
| ( |
Accounts receivable, net | | $ | | | $ | |
The following table presents the roll-forward of the allowance for doubtful accounts for the six months ended June 30, 2022.
|
| | |
| Allowance for | |
| | | | | Doubtful | |
(dollars in thousands) | | | | | Accounts | |
Balance, January 1, 2022 |
| |
| | $ | ( |
Collection Allowance: |
| |
| |
|
|
Medicaid | | $ | ( | |
|
|
Medicare | |
| ( | |
|
|
Third party payers | |
| ( | |
|
|
| |
| ( | |
|
|
Bad debt expense | | $ | | |
|
|
Total charges | |
|
| |
| ( |
Other | | | | | | |
Balance, June 30, 2022 | |
|
| | $ | ( |
For the six months ended June 30, 2022, the allowance for doubtful accounts was adjusted by $
26
Customer Revenue and Accounts Receivable Concentration
Our customers are oncologists, hospitals, reference laboratories, physician-office laboratories, and pharma and biotech companies. Customers that accounted for 10% or greater of our net sales or accounts receivable for the identified periods is as follows:
| | Net sales | | | Accounts receivable, as of | | |||||||||
| | Three Months Ended | | | Six Months Ended | | | | | ||||||
| | June 30, | | | June 30, | | | June 30, | | December 31, | | ||||
| | 2022 | | 2021 | | | 2022 | | 2021 | | | 2022 | | 2021 | |
| | | | | | | | | | | | | | | |
Customer A | | * | | * | | | * | | * | | | % | % | ||
Customer B | | * | | * | | | * | | * | | | % | * | | |
Customer C | | * | | % | | * | | * | | | * | | % | ||
| | | | | | | | | | | | | | | |
* represents less than 10% | | | | | | | | | | | | | | | |
11. SUBSEQUENT EVENTS
The Company has evaluated events and transactions subsequent to June 30, 2022 through the date the condensed consolidated financial statements were issued and there are no other events to report other than what has been disclosed in the condensed consolidated financial statements.
27
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Information
This Quarterly Report on Form 10-Q, including this Management’s Discussion and Analysis, contains forward-looking statements. These statements are based on management’s current views, assumptions or beliefs of future events and financial performance and are subject to uncertainty and changes in circumstances. Readers of this report should understand that these statements are not guarantees of performance or results. Many factors could affect our actual financial results and cause them to vary materially from the expectations contained in the forward-looking statements. These factors include, among other things: our expected revenue, income (loss), receivables, operating expenses, supplier pricing, availability and prices of raw materials, insurance reimbursements, product pricing, sources of funding operations and acquisitions, our ability to raise funds, sufficiency of available liquidity, the impact of inflation on our business, results of operations, or financial condition, the potential impact of COVID-19 and precautionary measures that may be implemented or continued for an uncertain period of time, future interest costs, future economic circumstances, business strategy, industry conditions, our ability to execute our operating plans, the success of our cost savings initiatives, competitive environment and related market conditions, expected financial and other benefits from our organizational restructuring activities, geopolitical uncertainties with the ongoing Russia and Ukraine conflict, actions of governments and regulatory factors affecting our business, retaining key employees and other risks as described in our reports filed with the Securities and Exchange Commission. In some cases these statements are identifiable through the use of words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would” or the negative versions of these terms and other similar expressions.
You are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Actual results may differ materially from those suggested by the forward-looking statements that we make for a number of reasons, including those described in Part II, Item 1A, “Risk Factors,” of this Quarterly Report on Form 10-Q 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, which we filed with the Securities and Exchange Commission on March 30, 2022. Results for the three and six months ended June 30, 2022 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 commercial diagnostic cancer testing technologies, lack of subspecialized expertise, and sub-optimal laboratory processes that are needed in today’s diagnostic cancer testing in order to provide accurate, rapid, and resource-effective results to treat patients. Industry studies estimate 1 in 5 blood-cancer patients are misdiagnosed. As cancer diagnostic testing has evolved from cellular to molecular (genes and exons), laboratory testing has become extremely complex, requiring even greater diagnostic precision, attention to process and a more appropriate evaluation of the abundance of genetic data to effectively gather, consider, analyze and present information for the physician for patient treatment. Precipio sees cancer diagnostics as requiring a holistic approach to improve diagnostic data for improved interpretations with the intent to reduce misdiagnoses. By delivering diagnostic products, reagents and services that improve the accuracy and efficiency of diagnostics, leading to fewer misdiagnoses, we believe patient outcomes can be improved through the selection of appropriate therapeutic options.
28
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 diagnostic products. Laboratory and R&D facilities located in New Haven, Connecticut and Omaha, Nebraska house development teams that collaborate on 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 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.
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 six months ended June 30, 2022, the Company had a net loss of $6.7 million and net cash used in operating activities of $4.0 million. As of June 30, 2022, the Company had an accumulated deficit of $86.8 million and working capital of $5.2 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, the Company entered into a sales agreement with A.G.P./Alliance Global Partners (“AGP”), pursuant to which the Company may offer and sell its common stock having aggregate sales proceeds of up to $22.0 million, to or through AGP, as sales agent (the “AGP Sales Agreement”). From April 2, 2021 through the date the condensed consolidated financial statements were issued, we have already received approximately $15.5 million in gross proceeds through the AGP Sales Agreement from the sale of 4,565,538 shares of common stock, leaving the Company an additional $6.5 million available for future sales pursuant to the AGP Sales Agreement. |
Notwithstanding the aforementioned circumstances, there remains substantial doubt about the Company’s ability to continue as a going concern 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 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.
29
Outlook - COVID-19 related
The COVID-19 outbreak, which spread worldwide in the first quarter of 2020, has caused significant business disruption. The extent of the impact of the ongoing COVID-19 pandemic on the Company’s operational and financial performance will depend on future developments. While our laboratory operations resumed to near-normal capacity, we may continue to experience challenges in procuring materials and supplies in a consistently timely manner due to COVID-19-related supply chain issues. In addition, delays in the development of COVID-19 vaccines or the deployment of vaccines which are approved or otherwise authorized for emergency use, a recurrence or “subsequent waves” of COVID-19 cases, or the discovery of vaccine-resistant COVID-19 variants could cause other widespread or more severe impacts. We have been actively monitoring the COVID-19 situation and its impact on the global economy and the Company. As the global pandemic evolves, we will continue to monitor the extent to which COVID-19 impacts our revenues, expenses and liquidity.
Results of Operations for the Three Months Ended June 30, 2022 and 2021
Net Sales. Net sales were as follows:
| | Dollars in Thousands |
| |||||||||
| | Three Months Ended | | | | |||||||
| | June 30, | | Change |
| |||||||
|
| 2022 |
| 2021 |
| $ |
| % |
| |||
Service revenue, net, less allowance for doubtful accounts | | $ | 2,139 | | $ | 2,138 | | $ | 1 | | - | % |
Other | |
| 220 | |
| 206 | | | 14 | | 7 | % |
Net Sales | | $ | 2,359 | | $ | 2,344 | | $ | 15 | | 1 | % |
Net sales for the three months ended June 30, 2022 were approximately $2.4 million, an increase of less than $0.1 million as compared to the same period in 2021. During the three months ended June 30, 2022, despite the fact that we had a decrease in cases processed, patient diagnostic service revenue increased less than $0.1 million as compared to the same period in 2021 due better reimbursement rates for the billed tests partially offset by a larger allowance for doubtful accounts recorded during the three months ended June 30, 2022 as compared to the prior year period. We processed 1,009 cases during the three months ended June 30, 2022 as compared to 1,168 cases during the same period in 2021, or a 14% decrease in cases. Other revenue increased by less than $0.1 million for the three months ended June 30, 2022 as compared to the same period in 2021. The other revenues were primarily related to our HSRR program.
Cost of Sales. Cost of sales includes material and supply costs for the patient tests performed, costs related to HSRR products and other direct costs (primarily personnel costs, pathologist interpretation costs and rent) associated with the operations of our laboratory. Cost of sales decreased by less than $0.1 million for the three months ended June 30, 2022 as compared to the same period in 2021. The decrease was in line with the change in revenues discussed above.
Gross Profit. Gross profit and gross margins were as follows:
|
| Dollars in Thousands |
| ||||||||
| | Six Months Ended | | | | ||||||
| | June 30, | | Margin % |
| ||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||
Gross Profit | | $ | 773 | | $ | 751 |
| 33 | | 32 | % |
Gross margin was 33% of total net sales, for the three months ended June 30, 2022, as compared to 32% of total net sales for the same period in 2021. Gross profit was approximately $0.8 million during the three months ended June 30, 2022 and 2021, respectively. We operate a fully staffed CLIA and CAP certified clinical pathology and molecular laboratory. As such, it is necessary to maintain appropriate staffing levels to provide industry standard laboratory processing and reporting to ordering physicians. An increase in case volume will enable our laboratory to yield economies of scale and to leverage fixed expenses. We anticipate case volume to increase during the remainder of 2022 and for our costs per case to improve as additional economies of scale are possible.
30
Operating Expenses. Operating expenses primarily consist of personnel costs, professional fees, travel costs, facility costs, stock-based compensation costs and depreciation and amortization. Our operating expenses increased by $0.3 million to $3.2 million for the three months ended June 30, 2022 as compared to the same period in 2021. The increase included an increase of $0.1 million in sales and marketing expenses due to increased personnel costs, $0.1 million in research and development expenses due to increased operating supplies and $0.1 million in stock-based compensation expenses for the three months ended June 30, 2022 as compared to the prior year.
Other (Expense) Income. We recorded net other income of $0.3 million for the three months ended June 30, 2022 and net other expense of $0.9 million for the three months ended June 30, 2021. The amount for both periods is primarily attributable to non-cash income and expense recorded on warrant revaluations.
Results of Operations for the Six Months Ended June 30, 2022 and 2021
Net Sales. Net sales were as follows:
| | Dollars in Thousands | | |||||||||
| | Six Months Ended | | | | |||||||
| | June 30, | | Change | | |||||||
|
| 2022 |
| 2021 |
| $ |
| % |
| |||
Service revenue, net, less allowance for doubtful accounts | | $ | 4,064 | | $ | 3,795 | | $ | 269 | | 7 | % |
Other | |
| 742 | |
| 373 | | | 369 | | 99 | % |
Net Sales | | $ | 4,806 | | $ | 4,168 | | $ | 638 | | 15 | % |
Net sales for the six months ended June 30, 2022 were approximately $4.8 million, an increase of $0.6 million as compared to the same period in 2021. During the six months ended June 30, 2022, despite the fact that we had a decrease in cases processed, patient diagnostic service revenue increased $0.3 million as compared to the same period in 2021 due better reimbursement rates achieved for the tests billed in the current year. We processed 2,006 cases during the six months ended June 30, 2022 as compared to 2,251 cases during the same period in 2021, or an 11% decrease in cases. Other revenue increased $0.3 million for the six months ended June 30, 2022 as compared to the same period in 2021. The increase is the result of a $0.4 million increase in revenues related to our HSRR program, partially offset by a $0.1 million decrease in other miscellaneous revenues.
Cost of Sales. Cost of sales includes material and supply costs for the patient tests performed, costs related to HSRR products and other direct costs (primarily personnel costs, pathologist interpretation costs and rent) associated with the operations of our laboratory. Cost of sales increased $0.3 million for the six months ended June 30, 2022 as compared to the same period in 2021. The increase included increases in costs related to both service revenues and other revenues and was in line with the increase revenues discussed above.
Gross Profit. Gross profit and gross margins were as follows:
| | Dollars in Thousands | | ||||||||
| | Six Months Ended | |
| | ||||||
| | June 30, | | Margin % | | ||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | | ||
Gross Profit | | $ | 1,476 | | | 1,219 |
| 31 | % | 29 | % |
Gross margin was 31% of total net sales, for the six months ended June 30, 2022, as compared to 29% of total net sales for the same period in 2021. Gross profit was approximately $1.5 million and $1.2 million during the six months ended June 30, 2022 and 2021, respectively. An increase in case volume will enable our laboratory to yield economies of scale and to leverage fixed expenses. We anticipate case volume to increase during the remainder of 2022 and for our costs per case to improve as additional economies of scale are possible.
31
Operating Expenses. Operating expenses primarily consist of personnel costs, professional fees, travel costs, facility costs, stock-based compensation costs and depreciation and amortization. Our operating expenses increased by $3.2 million to $8.7 million for the six months ended June 30, 2022 as compared to the same period in 2021. The increase included the following: an increase of $0.7 million in general and administrative expenses due to a $0.3 million increase in personnel costs and a $0.4 million increase in legal fees; an increase of $0.3 million in sales and marketing expenses due primarily to increased personnel costs; an increase of $0.3 million in research and development expenses due to a $0.1 million increase in personnel costs, a $0.1 million increase in operating supplies and a $0.1 million increase in other expenses; and, a $1.9 million increase in stock-based compensation expenses for the six months ended June 30, 2022 as compared to the prior year.
Other (Expense) Income. We recorded net other income of $0.5 million for the six months ended June 30, 2022 and net other expense of $0.2 million for the six months ended June 30, 2021. The other income for the six months ended June 30, 2022 is attributable to non-cash income recorded on warrant revaluations. The other expense for the six months ended June 30, 2021 includes $1.0 million of expense from warrant revaluations partially offset by $0.8 million of a gain on forgiveness of debt related to the forgiveness of our Paycheck Protection Program Loan.
Liquidity and Capital Resources
Our working capital positions were as follows:
| | Dollars in Thousands | |||||||
|
| June 30, 2022 |
| December 31, 2021 |
| Change | |||
Current assets (including cash of $7,473 and $11,668 respectively) | | $ | 9,606 | | $ | 13,478 | | $ | (3,872) |
Current liabilities | |
| 4,394 | |
| 4,213 | |
| 181 |
Working capital | | $ | 5,212 | | $ | 9,265 | | $ | (4,053) |
Analysis of Cash Flows – Six Months Ended June 30, 2022 and 2021
Net Change in Cash. Cash decreased by $4.2 million and increased by $16.4 million during the six months ended June 30, 2022 and 2021, respectively.
Cash Flows Used in Operating Activities. The cash flows used in operating activities of approximately $4.0 million during the six months ended June 30, 2022 included a net loss of $6.7 million, an increase in accounts receivables of $0.6 million, a decrease accrued expenses and other liabilities of $0.5 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 $0.2 million, an increase in accounts payable of $0.7 million and non-cash adjustments of $3.1 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 $2.9 million include, among other things, depreciation and amortization, warrant revaluations and stock-based compensation. The cash flows used in operating activities of approximately $3.0 million during the six months ended June 30, 2021 included a net loss of $4.4 million, an increase in inventories of $0.2 million, an increase in finance lease right of use assets of less than $0.1 million, a decrease in accrued expenses and other liabilities of $0.6 million and a decrease in operating lease liabilities of $0.1 million. These were partially offset by a decrease in accounts receivable of $0.2 million, an increase in accounts payable of $0.1 million and non-cash adjustments of $2.1 million.
Cash Flows Used In Investing Activities. Cash flows used in investing activities were $0.1 million and $0.3 million for the six months ended June 30, 2022 and 2021, respectively, resulting from purchases of property and equipment.
Cash Flows Used in or Provided by Financing Activities. Cash flows used by financing activities totaled $0.1 million for the six months ended June 30, 2022, which included payments on our long-term debt and finance lease obligations of $0.1 million. Cash flows provided by financing activities totaled $16.4 million for the six months ended
32
June 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 less than $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 June 30, 2022 and December 31, 2021, 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.
Contractual Obligations and Commitments
No significant changes to contractual obligations and commitments occurred during the six months ended June 30, 2022, as compared to those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission on March 30, 2022.
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 Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission on March 30, 2022.
Recently Issued Accounting Pronouncements
See the accompanying unaudited condensed consolidated financial statements and Note 2 - “Summary of Significant Accounting Policies” in the Notes to unaudited condensed consolidated financial statements 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.
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,
33
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 June 30, 2022.
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 June 30, 2022 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 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 such laws and regulations can be subject to future government review and interpretation, as well as regulatory actions unknown or unasserted at this time.
The outcome of legal proceedings and claims brought against us are subject to significant uncertainty. Therefore, although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against us in the 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. On February 6, 2017, CPA Global claimed that we owed approximately $0.2 million for certain patent maintenance services rendered. CPA Global has not filed claims against us in connection with this allegation. A liability of less than $0.1 million has been recorded and is reflected in accounts payable within the accompanying condensed consolidated balance sheets at June 30, 2022 and December 31, 2021.
Item 1A. Risk Factors
As disclosed in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, there are a number of risks and uncertainties that may have a material effect on the operating results of our business and our financial condition. The following information updates, and should be read in conjunction with, the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, which could materially affect our business, financial condition or future results. The risks described in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K 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. For the six months ended June 30, 2022, we had a net loss of $6.7 million and had net cash used in operating activities of $4.0 million. As of June 30, 2022, we had working capital of $5.2. To date, we have experienced negative cash flow from development of our diagnostic technology, as well as from the costs associated with establishing a laboratory and building a sales force to market our products and services. We expect to incur substantial net losses for the foreseeable future to further develop and commercialize our diagnostic technology. We also expect that our selling, general and administrative expenses will
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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 June 30, 2022, our cash balance was $7.5 million and our working capital was approximately $5.2 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.
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 financial results.
The ongoing COVID-19 pandemic is evolving, continues to spread globally, and to date has led to the implementation of various responses, including government-imposed quarantines, closure of non-essential business, work-from-home directives, travel restrictions, physical distancing, shelter-in-place orders and other public health safety measures. Despite recent progress in the administration of vaccines, both the outbreak of recent variants, including Delta and Omicron, and the related containment and mitigation measures that have been put into place across the globe, have had an adverse impact on the global economy and our business, the severity and duration of which are uncertain. The COVID-19 pandemic continues to have a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services may be slow to return to pre-pandemic levels, if they return to pre-pandemic levels. In response to the COVID-19 pandemic, many of our employees are continuing to work remotely outside of our offices. Additionally, while our laboratory operations resumed to near-normal capacity, we may continue to experience challenges in procuring materials and supplies in a consistently timely manner due to COVID-19-related supply chain issues. The demand for COVID-19 vaccines and potential for manufacturing facilities and materials to be commandeered under the Defense Production Act of 1950, or equivalent foreign legislation, may make it more difficult to obtain materials or manufacturing. If any of our third-party manufacturers is adversely impacted by the COVID-19 pandemic or if they divert resources or manufacturing capacity to accommodate the development or manufacture of COVID-19 coronavirus vaccines, our supply chain may be disrupted, limiting our ability to produce our diagnostic tests.
Going forward, we expect that challenges to our business will continue. We have been and will continue to be prudent in managing through this economic crisis. Digital connectivity is now fundamental to the continuity of our business operations. We continually engage our employees and customers in keeping safe. We monitor adherence to
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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.
Inflation may continue to rise and increase our operating costs.
Over the twelve months ended June 2022, the US Bureau 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. Rising inflation has the potential to adversely affect our liquidity, business, financial condition and results of operations by increasing our overall cost structure. Although we may take measures to mitigate the impact of this inflation, if these measures are not effective, our business, financial condition, results of operations and liquidity could be materially adversely affected. Even if such measures are effective, there could be a difference between the timing of when these beneficial actions impact our results of operations and when the cost inflation is incurred.
Recent volatility in capital markets and lower market prices for our securities may affect our ability to access new capital through sales of shares of our common stock or issuance of indebtedness, which may harm our liquidity, limit our ability to grow our business, or improve our operating infrastructure and restrict our ability to compete in our markets.
Our operations consume substantial amounts of cash, and we intend to continue to make significant investments to support our business growth, respond to business challenges or opportunities, develop new solutions, retain or expand our current levels of personnel, improve our existing solutions, and enhance our operating infrastructure. Our future capital requirements may be significantly different from our current estimates and will depend on many factors, including the need to:
| ● | finance unanticipated working capital requirements; |
| ● | develop or enhance our technological infrastructure and our existing solutions; |
| ● | pursue acquisitions or other strategic relationships; and |
| ● | respond to competitive pressures. |
Accordingly, we may need to pursue equity or debt financings to meet our capital needs. With uncertainty in the capital markets and other factors, such financing may not be available on terms favorable to us or at all. If we raise additional funds through further issuances of equity or convertible debt securities, 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 limitations on our ability to invest in our operations and otherwise suffer harm to our business.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
| (a) | Exhibits |
| | |
31.1 | | |
| | |
31.2 | | |
| | |
32.1* | | |
| | |
32.2* | | |
| | |
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
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| PRECIPIO, INC. | |
| | |
Date: August 11, 2022 | By: | /S/ ILAN DANIELI |
| | Ilan Danieli |
| | Chief Executive Officer (Principal Executive |
| | |
| | |
Date: August 11, 2022 | By: | /S/ MATTHEW GAGE |
| | Matthew Gage |
| | Interim Chief Financial Officer (Principal Financial and Accounting Officer) |
39
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Ilan Danieli, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Precipio, Inc. (the Registrant); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiary, is made known to me by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and |
| 5. | The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent function): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. |
Date: August 11, 2022
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Matthew Gage, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Precipio, Inc. (the Registrant); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and we have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and |
| 5. | The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent function): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. |
Date: August 11, 2022
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying Quarterly Report on Form 10-Q of Precipio, Inc. for the period ended June 30, 2022, I, Ilan Danieli, Chief Executive Officer of Precipio, Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:
| (1) | Such Quarterly Report on Form 10-Q of Precipio, Inc. for the period ended June 30, 2022, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in such Quarterly Report on Form 10-Q of Precipio, Inc. for the period ended June 30, 2022, fairly presents, in all material respects, the financial condition and results of operations of Precipio, Inc. |
| /s/ ILAN DANIELI |
| Ilan Danieli |
| Chief Executive Officer (Principal Executive Officer) |
Date: August 11, 2022
A signed original of the certification required by Section 906 has been provided to Precipio, Inc. and will be retained by Precipio, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying Quarterly Report on Form 10-Q of Precipio, Inc. for the period ended June 30, 2022, I, Matthew Gage, Interim Chief Financial Officer of Precipio, Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:
| (1) | Such Quarterly Report on Form 10-Q of Precipio, Inc. for the period ended June 30, 2022, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in such Quarterly Report on Form 10-Q of Precipio, Inc. for the period ended June 30, 2022, fairly presents, in all material respects, the financial condition and results of operations of Precipio, Inc. |
| /s/ MATTHEW GAGE |
| Matthew Gage |
| Interim Chief Financial Officer (Principal Financial and Accounting Officer) |
Date: August 11, 2022
A signed original of the certification required by Section 906 has been provided to Precipio, Inc. and will be retained by Precipio, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.