Company Quick10K Filing
Quick10K
Precipio
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$6.73 6 $38
10-Q 2019-03-31 Quarter: 2019-03-31
S-1 2019-02-01 Public Filing
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-06-10 Other Events
8-K 2019-05-23 Other Events
8-K 2019-05-15 Other Events, Exhibits
8-K 2019-04-25 Amend Bylaw, Regulation FD, Exhibits
8-K 2019-03-11 Regulation FD, Exhibits
8-K 2019-02-14 Earnings, Exhibits
8-K 2019-01-29 Enter Agreement, Leave Agreement, Sale of Shares, Exhibits
8-K 2019-01-15 Sale of Shares, Exhibits
8-K 2019-01-02 Enter Agreement, Exhibits
8-K 2018-12-20 Shareholder Vote
8-K 2018-11-29 Enter Agreement, Exhibits
8-K 2018-11-15 Regulation FD, Exhibits
8-K 2018-10-16 Earnings, Exhibits
8-K 2018-09-26 Exhibits
8-K 2018-09-20 Enter Agreement, Exhibits
8-K 2018-09-17 Enter Agreement, Exhibits
8-K 2018-09-07 Enter Agreement, Sale of Shares, Other Events, Exhibits
8-K 2018-08-17 Regulation FD, Exhibits
8-K 2018-08-09 Officers, Exhibits
8-K 2018-07-18 Earnings, Exhibits
8-K 2018-07-06 Shareholder Vote
8-K 2018-06-15 Other Events, Exhibits
8-K 2018-06-04 Other Events
8-K 2018-05-14 Earnings, Exhibits
8-K 2018-04-26 Regulation FD, Exhibits
8-K 2018-04-20 Enter Agreement, Sale of Shares, Regulation FD, Exhibits
8-K 2018-03-26
8-K 2018-03-21 Enter Agreement, Shareholder Rights, Exhibits
8-K 2018-03-14 Other Events
8-K 2018-02-26 Other Events
8-K 2018-02-12 Other Events
8-K 2018-02-08 Enter Agreement, Earnings, Shareholder Rights, Exhibits
8-K 2018-01-30 Shareholder Vote, Other Events
BABA Alibaba 464,100
PB Prosperity Bancshares 5,040
SY So-Young International 1,900
TPH Tri Pointe Group 1,880
THFF First Financial 504
GROUP Kinetic Group 0
TAKD Transakt 0
SECI Sector 10 0
IGXT Intelgenx Technologies 0
PTLF Petlife Pharmaceuticals 0
PRPO 2019-03-31
Part 1. Financial Information
Item 1. Condensed Consolidated Financial Statements
Item 2. Management’S Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 5. Other Information
Item 6. Exhibits
EX-10.1 prpo-20190331ex101800a5b.htm
EX-10.2 prpo-20190331ex1028084a3.htm
EX-10.3 prpo-20190331ex103992299.htm
EX-10.4 prpo-20190331ex104e5e4d2.htm
EX-31.1 prpo-20190331ex3111f78d3.htm
EX-31.2 prpo-20190331ex312f14cc1.htm
EX-32.1 prpo-20190331ex3214cb1cb.htm
EX-32.2 prpo-20190331ex322035498.htm

Precipio Earnings 2019-03-31

PRPO 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 prpo-20190331x10q.htm 10-Q prpo_Current_Folio_10Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10‑Q


(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2019

 

 

 

OR

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____ to _____

 

Commission File Number: 001‑36439


PRECIPIO, INC.

(Exact name of registrant as specified in its charter)


Delaware

91‑1789357

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

 

4 Science Park, New Haven, CT

06511

(Address of principal executive offices)

(Zip Code)

 

(203) 787‑7888

(Registrant’s telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes      X         No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes      X           No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

  

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).  Yes       No   

 

 

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Ticker symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

PRPO

The Nasdaq Stock Market LLC

 

As of May 14, 2019, the number of shares of common stock outstanding was 5,919,681.

 

 

 


 

PRECIPIO, INC.

INDEX

 

 

    

Page No.

 

 

 

 

PART I. 

Financial Information

 

3

 

 

 

 

Item 1. 

Condensed Consolidated Financial Statements

 

3

 

 

 

 

 

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

 

3

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2019 and 2018 (unaudited)

 

4

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2019 and 2018 (unaudited)

 

5

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018 (unaudited)

 

6

 

 

 

 

 

Notes to the Condensed Consolidated Financial Statements (unaudited)

 

7

 

 

 

 

Item 2. 

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

 

36

 

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

 

41

 

 

 

 

Item 4. 

Controls and Procedures

 

41

 

 

 

 

PART II. 

Other Information

 

42

 

 

 

 

Item 1. 

Legal Proceedings

 

42

 

 

 

 

Item 1A. 

Risk Factors

 

43

 

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

 

44

 

 

 

 

Item 5. 

Other Information

 

44

 

 

 

 

Item 6. 

Exhibits

 

45

 

 

 

 

Signatures 

 

 

46

 

 

2


 

PART 1.  FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements

PRECIPIO, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

 

 

 

 

 

 

 

 

 

March 31, 2019

 

 

 

    

(unaudited)

    

December 31, 2018

ASSETS

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

Cash

 

$

302

 

$

381

Accounts receivable, net

 

 

801

 

 

690

Inventories

 

 

149

 

 

197

Other current assets

 

 

181

 

 

525

Total current assets

 

 

1,433

 

 

1,793

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT, NET

 

 

464

 

 

496

 

 

 

 

 

 

 

OTHER ASSETS:

 

 

 

 

 

 

Operating lease right-of-use assets

 

 

689

 

 

 —

Intangibles, net

 

 

19,028

 

 

19,291

Other assets

 

 

25

 

 

25

Total assets

 

$

21,639

 

$

21,605

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

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

 

$

161

 

$

263

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

 

 

3,129

 

 

4,377

Current maturities of finance lease liabilities

 

 

58

 

 

57

Current maturities of operating lease liabilities

 

 

221

 

 

 —

Accounts payable

 

 

4,696

 

 

5,169

Accrued expenses

 

 

1,651

 

 

1,940

Deferred revenue

 

 

35

 

 

49

Other current liabilities

 

 

 —

 

 

1,910

Total current liabilities

 

 

9,951

 

 

13,765

LONG TERM LIABILITIES:

 

 

 

 

 

 

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

 

 

238

 

 

253

Finance lease liabilities, less current maturities

 

 

140

 

 

155

Operating lease liabilities, less current maturities

 

 

470

 

 

 —

Common stock warrant liabilities

 

 

892

 

 

1,132

Derivative liabilities

 

 

 —

 

 

62

Deferred tax liability

 

 

70

 

 

70

Other long-term liabilities

 

 

45

 

 

45

Total liabilities

 

 

11,806

 

 

15,482

COMMITMENTS AND CONTINGENCIES (Note 6)

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

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

 

 

 —

 

 

 —

Common stock, $0.01 par value, 150,000,000 shares authorized at March 31, 2019 and December 31, 2018, 4,304,929 and 2,298,738 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively

(1)

 

43

 

 

23

Additional paid-in capital

(1)

 

59,138

 

 

53,796

Accumulated deficit

 

 

(49,348)

 

 

(47,696)

Total stockholders’ equity

 

 

9,833

 

 

6,123

 

 

$

21,639

 

$

21,605

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

 

See notes to unaudited condensed consolidated financial statements.

 

3


 

PRECIPIO, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

    

2019

    

2018

 

SALES:

 

 

  

 

 

  

 

Service revenue, net

 

$

910

 

$

791

 

Other

 

 

 7

 

 

 5

 

Revenue, net of contractual allowances and adjustments

 

 

917

 

 

796

 

less allowance for doubtful accounts

 

 

(204)

 

 

(84)

 

Net sales

 

 

713

 

 

712

 

COST OF SALES:

 

 

  

 

 

  

 

Service revenue

 

 

675

 

 

688

 

Total cost of sales

 

 

675

 

 

688

 

Gross profit

 

 

38

 

 

24

 

OPERATING EXPENSES:

 

 

  

 

 

  

 

Operating expenses

 

 

2,097

 

 

2,178

 

Impairment of goodwill

 

 

 –

 

 

294

 

TOTAL OPERATING EXPENSES

 

 

2,097

 

 

2,472

 

OPERATING LOSS

 

 

(2,059)

 

 

(2,448)

 

OTHER INCOME (EXPENSE):

 

 

  

 

 

  

 

Interest expense, net

 

 

(23)

 

 

(8)

 

Warrant revaluation and modification

 

 

240

 

 

261

 

Derivative revaluation

 

 

23

 

 

 –

 

Gain on settlement of liability, net

 

 

167

 

 

141

 

Loss on settlement of equity instruments

 

 

 –

 

 

(385)

 

 

 

 

407

 

 

 9

 

LOSS BEFORE INCOME TAXES

 

 

(1,652)

 

 

(2,439)

 

INCOME TAXES

 

 

 –

 

 

 –

 

NET LOSS

 

 

(1,652)

 

 

(2,439)

 

 

 

 

 

 

 

 

 

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

 

 

 –

 

 

(3,514)

 

TOTAL DIVIDENDS

 

 

 –

 

 

(3,514)

 

NET LOSS AVAILABLE TO COMMON STOCKHOLDERS

 

$

(1,652)

 

$

(5,953)

 

 

 

 

 

 

 

 

 

BASIC AND DILUTED LOSS PER COMMON SHARE  (1)

 

$

(0.48)

 

$

(7.10)

 

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

 

 

3,441,893

 

 

838,402

 

 

(1)

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

 

See notes to unaudited condensed consolidated financial statements.

4


 

PRECIPIO, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31, 2019

 

 

Preferred Stock

 

Common Stock

 

Additional

 

 

 

 

 

 

 

 

Outstanding

 

Par

    

Outstanding

    

Par

 

Paid-in

 

Accumulated

 

 

 

 

    

Shares

    

Value

    

Shares (1)

    

Value (1)

    

Capital (1)

    

Deficit

    

Total

Balance, December 31, 2018

 

47

 

$

 —

 

2,298,738

 

$

23

 

$

53,796

 

$

(47,696)

 

$

6,123

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(1,652)

 

 

(1,652)

Conversion of convertible notes into common stock

 

 —

 

 

 —

 

1,248,115

 

 

12

 

 

3,114

 

 

 —

 

 

3,126

Issuance of common stock in connection with purchase agreements

 

 —

 

 

 —

 

758,076

 

 

 8

 

 

1,718

 

 

 —

 

 

1,726

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

 

 —

 

 

 —

 

 —

 

 

 —

 

 

315

 

 

 —

 

 

315

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

 

 —

 

 

 —

 

 —

 

 

 —

 

 

39

 

 

 —

 

 

39

Stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

156

 

 

 —

 

 

156

Balance, March 31, 2019

 

47

 

$

 —

 

4,304,929

 

$

43

 

$

59,138

 

$

(49,348)

 

$

9,833

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31, 2018

 

 

Preferred Stock

 

Common Stock

 

Additional

 

 

 

 

 

 

 

 

Outstanding

 

Par

    

Outstanding

    

Par

 

Paid-in

 

Accumulated

 

 

 

 

    

Shares

    

Value

    

Shares (1)

    

Value (1)

    

Capital (1)

    

Deficit

    

Total

Balance, December 31, 2017

 

4,935

 

$

 —

 

679,774

 

$

 7

 

$

44,560

 

$

(31,542)

 

$

13,025

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(2,439)

 

 

(2,439)

Conversion of preferred stock into common stock

 

(4,888)

 

 

 —

 

431,022

 

 

 4

 

 

(4)

 

 

 —

 

 

 —

Issuance of common stock in connection with purchase agreements

 

 —

 

 

 —

 

59,457

 

 

 1

 

 

617

 

 

 —

 

 

618

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

 

 —

 

 

 —

 

120,983

 

 

 1

 

 

1,896

 

 

 —

 

 

1,897

Issuance of common stock upon exercise of warrants

 

 —

 

 

 —

 

20,000

 

 

 —

 

 

225

 

 

 —

 

 

225

Stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

82

 

 

 —

 

 

82

Balance, March 31, 2018

 

47

 

$

 —

 

1,311,236

 

$

13

 

$

47,376

 

$

(33,981)

 

$

13,408

 

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

See notes to unaudited condensed consolidated financial statements

 

5


 

PRECIPIO, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

    

2019

    

2018

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$

(1,652)

 

$

(2,439)

 

 

 

 

 

 

 

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

 

 

  

 

 

  

Depreciation and amortization

 

 

277

 

 

352

Amortization of operating lease right-of-use asset

 

 

61

 

 

 —

Amortization of finance lease right-of-use asset

 

 

15

 

 

 —

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

 

 

(100)

 

 

 1

Gain on settlement of liability, net

 

 

(167)

 

 

(141)

Loss on settlement of equity instrument

 

 

 —

 

 

385

Stock-based compensation

 

 

156

 

 

82

Impairment of goodwill

 

 

 —

 

 

294

Provision for losses on doubtful accounts

 

 

204

 

 

84

Warrant revaluation and modification

 

 

(240)

 

 

(261)

Derivative revaluation

 

 

(23)

 

 

 —

Changes in operating assets and liabilities:

 

 

  

 

 

  

Accounts receivable, net

 

 

(315)

 

 

94

Inventories, net

 

 

48

 

 

 2

Other assets

 

 

86

 

 

218

Accounts payable

 

 

(425)

 

 

(44)

Operating lease liabilities

 

 

(58)

 

 

 —

Accrued expenses and other liabilities

 

 

254

 

 

228

Net cash used in operating activities

 

 

(1,879)

 

 

(1,145)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

  

 

 

  

Purchase of property and equipment

 

 

(3)

 

 

(5)

Net cash used in investing activities

 

 

(3)

 

 

(5)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

  

 

 

  

Principal payments on finance lease obligations

 

 

(14)

 

 

(12)

Issuance of common stock, net of issuance costs

 

 

1,726

 

 

618

Proceeds from exercise of warrants

 

 

 —

 

 

225

Proceeds from long-term debt

 

 

 —

 

 

300

Proceeds from convertible notes

 

 

250

 

 

 —

Principal payments on convertible notes

 

 

(50)

 

 

 —

Principal payments on long-term debt

 

 

(109)

 

 

(116)

Net cash flows provided by financing activities

 

 

1,803

 

 

1,015

NET CHANGE IN CASH

 

 

(79)

 

 

(135)

CASH AT BEGINNING OF PERIOD

 

 

381

 

 

421

CASH AT END OF PERIOD

 

$

302

 

$

286

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

  

 

 

  

Cash paid during the period for interest

 

$

 8

 

$

 6

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

 

 

  

 

 

  

Purchases of equipment financed through accounts payable

 

 

 —

 

 

 7

Deferred debt issuance cost financed through accounts payable

 

 

 —

 

 

31

Other current liabilities canceled in exchange for common shares

 

 

 —

 

 

1,897

Conversion of convertible debt plus interest into common stock

 

 

3,126

 

 

 —

Liabilities exchanged for convertible notes

 

 

2,150

 

 

 —

Warrant liability canceled due to settlement of equity instruments

 

 

 —

 

 

456

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

 

 

750

 

 

 —

Amounts included in measurement of lease liabilities

 

 

72

 

 

 —

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

 

 

315

 

 

 —

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

 

 

39

 

 

 —

 

See notes to unaudited condensed consolidated financial statements.

6


 

PRECIPIO, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2019 and 2018

1. BUSINESS DESCRIPTION

Business Description.

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

·

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

·

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

·

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

 

Going Concern.

The condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America (“GAAP”) applicable for a going concern, which assume that the Company will realize its assets and discharge its liabilities in the ordinary course of business. The Company has incurred substantial operating losses and has used cash in its operating activities for the past several years. As of March 31, 2019, the Company had a net loss of $1.7 million, negative working capital of $8.5 million and net cash used in operating activities of $1.9 million. The Company’s ability to continue as a going concern over the next twelve months from the date of issuance of these condensed consolidated financial statements in the Quarterly Report on Form 10‑Q is dependent upon a combination of achieving its business plan, including generating additional revenue, and raising additional financing to meet its debt obligations and paying liabilities arising from normal business operations when they come due.

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

·

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

7


 

and the extent to which we are able to secure working capital from other sources.  As of April 30, 2019, we have already received approximately $1.4 million from the sale of 328,590 shares of common stock to Lincoln Park during 2018, $1.7 million from the sale of 758,076 shares of common stock to Lincoln Park during the three months ended March 31, 2019 and $0.7 million from the sale of 240,000 shares of common stock to Lincoln Park during April 2019.

·

On April 16, 2019, the Company entered into a second amendment and restatement agreement amending and restating the terms of the 2018 Note Agreement (as first amended pursuant to the Amendment and Restatement dated November 29, 2018) (the "Amendment No.2 Agreement"). Amendment No. 2 Agreement provided for the issuance of up to approximately $989,011 of additional notes together with applicable warrants (the “April 2019 Additional Notes and Warrants”) on substantially the same terms and conditions as the notes and warrants that were issued in connection with the original amendment and restatement.  The closing of the April 2019 Additional Notes provided the Company with approximately $900,000 of gross proceeds for the issuance of notes with an aggregate principal of approximately $989,011.

·

On May 14 2019, the Company entered into a securities purchase agreement (the “May 2019 Note Agreement”) with certain investors, pursuant to which the Company would issue up to approximately $1,098,901 in Senior Secured Convertible Promissory Notes along with warrants (the “May 2019 Transaction”). The closing of the May 2019 Transaction provided the Company with proceeds of $1,000,000 for the issuance of notes with an aggregate principal of $1,098,901.

 

Notwithstanding the aforementioned circumstances, there remains substantial doubt about the Company’s ability to continue as a going concern over the next twelve months from the issuance of these condensed consolidated financial statements in the Quarterly Report on Form 10‑Q. There can be no assurance that the Company will be able to successfully achieve its initiatives summarized above in order to continue as a going concern over the next twelve months from the date of issuance of the Form 10‑Q. The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern and do not include any adjustments that might result should the Company be unable to continue as a going concern as a result of the outcome of this uncertainty.

Nasdaq Compliance

On March 26, 2019, we were notified by the Listing Qualifications Staff of The Nasdaq Stock Market LLC that we did not meet the minimum closing bid price requirement of $1 for continued listing, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Requirement”).  On April 25, 2019 we filed a Certificate of Amendment to our Third Amended and Restated Certificate of Incorporation (the “Certificate of Amendment”) with the Secretary of State of Delaware, pursuant to which we effected a 1-for-15 reverse stock split (the “Reverse Stock Split”) of our issued and outstanding common stock. The Reverse Stock Split became effective as of 5:00 p.m. (Eastern Time) on April 26, 2019, and our common stock began trading on a split-adjusted basis on the Nasdaq Capital Market at the market open on April 29, 2019.  On May 15, 2019, we received notification from Nasdaq that the Company’s stock price was in compliance with the Bid Price Requirement, and that the matter is now closed.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation.

The accompanying condensed consolidated financial statements are presented in conformity with GAAP. As required under GAAP, pursuant to the Reverse Stock Split, unless otherwise indicated, the Company has adjusted all share amounts, per share data, share prices, exercise prices and conversion rates set forth in these notes and the accompanying condensed consolidated financial statements.

The condensed consolidated balance sheet as of December 31, 2018 was derived from our audited balance sheet as of that date. There has been no change in the balance sheet from December 31, 2018, except for the retroactive adjustment to reflect the Reverse Stock Split. The accompanying condensed consolidated financial statements as of and for the three months ended March 31, 2019 and 2018 are unaudited and reflect all adjustments (consisting of only normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position

8


 

and operating results for the interim periods. These unaudited condensed consolidated financial statements and notes should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2018 contained in our Annual Report Form 10‑K, filed with the Securities and Exchange Commission (the “SEC”) on April 16, 2019. The results of operations for the interim periods presented are not necessarily indicative of the results for fiscal year 2019.

Recently Adopted Accounting Pronouncements.

In February 2016, the FASB issued ASU No. 2016‑02, Leases-Topic 842. The new standard amends the recognition of lease assets and lease liabilities by lessees for those leases currently classified as operating leases and amends disclosure requirements associated with leasing arrangements. The new standard was adopted effective January 1, 2019, using a modified retrospective transition, and thus did not adjust comparative periods. The new standard provides a number of optional practical expedients in transition.  The Company has elected the “package of practical expedients”, which permits it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs.  The Company did not elect the use-of-hindsight practical expedient. As a result of the adoption of Topic 842 the Company has recognized approximately $0.7 million of lease liabilities and corresponding right-of-use (“ROU”) assets in its condensed consolidated balance sheet on the date of initial application. See Note 7 – Leases for additional information.

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

Recent Accounting Pronouncements Not Yet Adopted

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

In August 2018, the FASB issued ASU 2018-15 “Intangibles—Goodwill and Other—Internal Use Software (Subtopic 350-40)”, which aligns the requirements for capitalizing implementation costs incurred in a cloud computing hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software. This ASU is effective for reporting periods beginning after December 15, 2019. We are currently assessing the potential impact that the adoption of this ASU will have on our condensed consolidated financial statements.

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 3,100,043 and 633,766 shares of our common stock have been excluded from the computation of diluted loss per share at March 31, 2019 and 2018, respectively, because the effect is anti-dilutive due to the net loss.

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

 

 

 

 

 

 

 

March 31, 

 

    

2019

    

2018

Stock options

 

498,262

 

234,670

Warrants

 

917,563

 

394,919

Preferred stock

 

20,888

 

4,177

Convertible notes

 

1,663,330

 

 —

Total

 

3,100,043

 

633,766

 

 

3. LONG-TERM DEBT

Long-term debt consists of the following:

 

 

 

 

 

 

 

 

 

Dollars in Thousands

 

    

March 31, 2019

    

December 31, 2018

Department of Economic and Community Development (DECD)

 

$

267

 

$

274

DECD debt issuance costs

 

 

(27)

 

 

(28)

Financed insurance loan

 

 

102

 

 

204

September 2018 Settlement

 

 

57

 

 

66

Total long-term debt

 

 

399

 

 

516

Current portion of long-term debt

 

 

(161)

 

 

(263)

Long-term debt, net of current maturities

 

$

238

 

$

253

 

Department of Economic and Community Development.

On January 8, 2018, the Company received gross proceeds of $400,000 when it entered into an agreement with the Department of Economic and Community Development (“DECD”) by which the Company received a grant of $100,000 and a loan of $300,000 secured by substantially all of the Company’s assets (the “DECD 2018 Loan”.) The DECD 2018 Loan is a ten-year loan due on December 31, 2027 and includes interest paid monthly at 3.25%.

Debt issuance costs associated with the DECD 2018 Loan were approximately $31,000. Amortization of the debt issuance cost was approximately $1,000 for the three months ended March 31, 2019 and 2018, respectively. Net debt issuance costs were $27,000 and $28,000 at March 31, 2019 and December 31, 2018, respectively and are presented as a reduction of the related debt in the accompanying condensed consolidated balance sheets. Amortization for each of the next five years is expected to be approximately $3,000.

Financed Insurance Loan.

The Company finances certain of its insurance premiums (the “Financed Insurance Loans”). In July 2017 the Company financed $0.4 million with a 4.99 % interest rate and fully paid off such loan as of May 2018. In July 2018, the Company financed $0.4 million with a 4.89% interest rate and will make monthly payments through June 2019. As of March 31, 2019 and December 31, 2018, the Financed Insurance Loans outstanding balance of $0.1 million and $0.2 million, respectively, was included in current maturities of long-term debt in the Company’s condensed consolidated balance sheet. A corresponding prepaid asset was included in other current assets.

Settlement Agreement.

On September 21, 2018, the Company entered into a settlement and forbearance agreement with a creditor (the “September 2018 Settlement”) pursuant to which, the Company agreed to make monthly principal and interest payments to the creditor over a two year period, from November 1, 2018 to November 1, 2020, in full and final settlement of $0.1 million of indebtedness that was owed to the creditor on the date of the September 2018 Settlement. The settlement amount will accrue interest at the rate of 10% per annum until paid in full. The September 2018 Settlement outstanding balance of

10


 

$0.1 million was included in long-term debt and accounts payable in the Company’s condensed consolidated balance sheet as of March 31, 2019 and December 31, 2018, respectively.

 

 

4. CONVERTIBLE NOTES

Convertible notes consist of the following:

 

 

 

 

 

 

 

 

 

Dollars in Thousands

 

    

March 31, 2019

    

December 31, 2018

Convertible bridge notes

 

$

2,170

 

$

4,294

Convertible bridge notes discount and debt issuance costs

 

 

(1,053)

 

 

(1,111)

Convertible bridge notes premiums

 

 

91

 

 

647

Convertible promissory notes - Exchange Notes

 

 

 —

 

 

630

Convertible promissory notes - Exchange notes debt issuance costs

 

 

 —

 

 

(83)

Convertible promissory notes - Crede Note

 

 

1,450

 

 

 —

Convertible promissory notes - Leviston Note

 

 

471

 

 

 —

Total convertible notes

 

 

3,129

 

 

4,377

Current portion of convertible notes

 

 

(3,129)

 

 

(4,377)

Convertible notes, net of current maturities

 

$

 —

 

$

 —

 

Convertible Bridge Notes.

On April 20, 2018, the Company entered into a securities purchase agreement (the “2018 Note Agreement”) with certain investors (the “April 2018 Investors”), pursuant to which the Company would issue up to approximately $3,296,703 in Senior Secured Convertible Promissory Notes along with warrants (the “Transaction”). The number of warrants are equal to the number of shares of common stock issuable upon conversion of the notes based on the conversion price at the time of issuance. Half of the warrants will have a one-year term and half will have a five-year term. The 2018 Note Agreement includes customary representations, warranties and covenants by the Company and customary closing conditions.

The Transaction consists of a series of unregistered Senior Secured Convertible Notes (the “Bridge Notes”), bearing interest at a rate of 8% annually and an original issue discount of 9%. The Bridge Notes are convertible at a price of $7.50 per share, provided that if the notes are not repaid within 180 days of the note’s issuance date, the conversion price shall be adjusted to 80% of the lowest volume weighted average price during the prior 10 days, subject to a minimum conversion price of $4.50 per share.

The Transaction consisted of a number of drawdowns. The initial closing on April 20, 2018 provided the Company with proceeds of $1,660,000, net of an original issue discount of 9% and before debt issuance costs, for the issuance of notes with an aggregate principal of $1,824,176 (the “April 2018 Bridge Notes”). The Company completed three additional drawdowns for aggregate proceeds of $1.3 million, net of an original issue discount of 9% and before debt issuance cost, for the issuance of notes with an aggregate principal of $1.5 million (the “Q3 2018 Bridge Notes”).

The Bridge Notes are payable by the Company on the earlier of (i) the one year anniversary after each closing date or (ii) upon the closing of a qualified offering, namely the Company raising gross proceeds of at least $7,000,000 (the “Maturity Date”). At any time, provided that the Company gives 5 business days written notice, the Company has the right to redeem the outstanding principal amount of the Bridge Notes, including accrued but unpaid interest, all liquidated damages and all other amounts due under the Bridge Notes, for cash as follows: (i) an amount which is equal to the sum of 105% if the Company exercises its right to redeem the Bridge Notes within 90 days of the initial closing, (ii) 110% if the Company exercises its right to redeem the Bridge Notes within 180 days of the initial closing, or (iii) 115% if the Company exercises its right to redeem 180 days from the initial closing.

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The terms of the 2018 Note Agreement also stipulates that upon written demand by one of the April 2018 Investors, for any of their draws throughout the year associated with the 2018 Note Agreement after a period of time as defined within the 2018 Note Agreement, the Company shall file a registration statement within thirty (30) days after written demand covering the resale of all or such portion of the conversion shares for an offering to be made on a continuous basis pursuant to Rule 415. The registration statement filed shall be on Form S‑3 or Form S‑1, at the option of the Company. If the Company does not file a registration statement in accordance with the terms of the 2018 Note Agreement, then on the business day following the applicable filing date and on each monthly anniversary of the business day following the applicable filing date (if no registration statement shall have been filed by the Company in accordance herewith by such date), the Company shall pay to the April 2018 Investors an amount in cash, as partial liquidated damages, equal to 1% per month (pro-rata for partial months) based upon the gross purchase price of the Bridge Notes (calculated on a daily basis) under the 2018 Note Agreement. As requested by certain April 2018 investors, conversion shares related to the April 2018 Note Agreement were included in a registration statement on Form S-3 that the Company filed with the SEC on February 6, 2019 and which became effective with the SEC on February 13, 2019.

The obligations under the Bridge Notes are secured, subject to certain exceptions and other permitted payments by a perfected security interest on the assets of the Company.

The 9% discount associated with the April 2018 Bridge Notes was approximately $164,000 and was recorded as a debt discount. The Company also incurred legal and advisory fees associated with the April 2018 Bridge Notes of approximately $164,000 and these were recorded as debt issuance costs. The 9% discount associated with the Q3 2018 Bridge Notes was approximately $133,000 and was recorded as a debt discount.

As part of the initial closing, the April 2018 Investors received 243,223 warrants to purchase shares of common stock of the Company (the “April 2018 Warrants”). The April 2018 Warrants had an initial value of approximately $1.1 million at the date of issuance and were recorded as a liability with an offset to debt discount. The April 2018 Investors received 196,337 warrants to purchase shares of common stock of the Company in connection with the Q3 Bridge Note issuances (the “Q3 2018 Warrants”). The terms of the Q3 2018 Warrants are the same as the April 2018 Warrants and, as such, were classified as liabilities, with an offset to debt discount, and had an initial value of approximately $0.7 million at the date of issuance. See Note 9 –Fair Value for further discussion.

On September 20, 2018, immediately after the final drawdown of the Bridge Notes, the Company entered into an agreement with the April 2018 Investors whereby the exercise price of all warrants issued to the April 2018 Investors in connection with both the 2018 Note Agreement and the Q3 2018 Bridge Notes were amended from $11.25 to $7.50. This repricing was accounted for as a modification.

Pursuant to a letter agreement, dated as of April 20, 2018 (the “Letter Agreement”), the Company engaged a registered broker dealer as a financial advisor (the “Financial Advisor”). Pursuant to the Letter Agreement, the Company paid the Financial Advisor a fee of $116,000, approximately 7% of the proceeds from the sale of the April 2018 Bridge Notes. This is included in the debt issuance costs discussed above. Per the Letter Agreement, the Company also issued to the Financial Advisor 15,466 warrants to purchase shares of common stock of the Company with an exercise price of $11.25 (the “Advisor Warrants”) which were classified as a liability. See Note 9 –Fair Value for further discussion.

The April 2018 Bridge Notes contained a beneficial conversion feature valued at $1.1 million which was recorded as a debt discount with an offset to additional paid in capital at the note issuance date and the Q3 2018 Bridge Notes contained beneficial conversion features valued at approximately $0.5 million which were recorded as debt discounts with an offset to additional paid in capital at the note issuance dates.

The Company reviewed the redemption features of the Bridge Notes and determined that there is a redemption feature (the “Bridge Notes Redemption Feature”) that qualifies as an embedded derivative. For the April 2018 Bridge Notes, the Company determined the initial fair value of the derivative at the time of issuance to be approximately $0.1  million which was recorded as a debt discount with an offset to derivative liability. For the Q3 2018 Bridge Notes, the Company determined the initial fair value of the derivatives at the time of issuance to be less than $0.1 million which was recorded as a debt discount with an offset to derivative liability. See Note 9 –Fair Value for further discussion.

12


 

On November 29, 2018, the Company entered into an amendment and restatement agreement (the “Amendment Agreement”) amending and restating the terms of the 2018 Note Agreement. The Amendment Agreement provided for the issuance of up to $1,318,681 of additional Bridge Notes together with applicable warrants, in one or more tranches, with substantially the same terms and conditions as the previously issued Bridge Notes and related warrants. The conversion price of the notes was amended so that it shall be equal to the greater of $3.75 or $0.75 above the closing bid price of our common stock on the date prior to the original issue date. In the event the notes are not paid in full prior to 180 days after the original issue date, the conversion price shall be equal to 80% of the lowest volume weighted average price (“VWAP”) in the 10 trading days prior to the date of the notice of conversion, but in no event below the floor price of $2.25.

 

In connection with the Amendment Agreement, during the fourth quarter of 2018, the Company completed two additional closings for aggregate proceeds of $1.1 million, net of an original issue discount of 9% and before debt issuance costs, for the issuance of notes with an aggregate principal of $1.2 million (collectively, the “Q4 2018 Bridge Notes”). Approximately $0.3 million of the $1.1 million of proceeds was received after December 31, 2018 and is included in other current assets on our condensed consolidated balance sheet at December 31, 2018. The 9% discount associated with the Q4 2018 Bridge Notes was approximately $108,000 and was recorded as a debt discount. In connection with the Q4 2018 Bridge Note issuances, the Company issued to the investors 300,114 warrants to purchase shares of common stock of the Company (the “Q4 2018 Warrants”), which had an initial value of approximately $0.7 million at the date of issuance and were recorded as a liability with an offset to debt discount. See Note 9 – Fair Value for further discussion.

 

The Company reviewed the conversion option of the Q4 2018 Bridge Notes and determined that there was a beneficial conversion feature with a value of approximately $0.5 million which was recorded as a debt discount with an offset to additional paid in capital. The Q4 2018 Bridge Notes also contain the Bridge Notes Redemption Feature which had an initial fair value at the time of issuance of approximately $15,000 which was recorded as a debt discount with an offset to derivative liability. See Note 9 – Fair Value for further discussion.

 

The total debt discounts and debt issuance costs related to the Q4 2018 Bridge Notes totaled $1.4 million, of which the Company recorded $1.1 million of debt discount and debt issuance costs as a reduction of the related debt in the accompanying condensed consolidated balance sheets as of March 31, 2019 and December 31, 2018, respectively.

 

At the time of the Amendment Agreement, the conversion price related to $3.3 million of previously issued Bridge Notes, the April 2018 Bridge Notes and Q3 2018 Bridge Notes, was amended and treated as an extinguishment of the related Bridge Notes. The Company removed the carrying value of the notes and recorded a new fair value of the notes (“New Debt”) which included a debt premium of $0.9 million at the time of the Amendment Agreement.

 

Since the issuance of the New Debt, $2.3 million of the total $4.5 million of Bridge Notes, plus interest, have been converted into a total of 1,112,762 shares of common stock of the Company. This included the conversion of approximately $2.1 million of Bridge Notes, plus interest, converted into 1,019,430 shares of common stock of the Company during the three months ended March 31, 2019 and $0.2 million of Bridge Notes, plus interest, converted into 93,333 shares of common stock of the Company during the fourth quarter of 2018.

 

13


 

During the three months ended March 31, 2019, the change in Bridge Note debt discounts and debt premiums was as follows:

 

 

 

 

 

 

 

(Dollars in thousands)

 

2019

 

 

 

Debt Discounts

 

 

Debt Premiums

Beginning balance at January 1

 

$

1,111

 

$

647

Deductions:

 

 

 

 

 

 

Amortization/accretion  (1)

 

 

(58)

 

 

(160)

Write-off related to note conversions  (2)

 

 

 —

 

 

(396)

Balance at March 31

 

$

1,053

 

$

91

(1)

Amortization/accretion is recognized as interest expense/income within the condensed consolidated statements of operations based on the effective interest method.

(2)

Write-offs associated with note conversions are recognized as an offset to additional paid-in capital at the time of the conversion.

 

The remaining debt discounts of $1.1 million and debt premiums of $0.1 million, as of March 31, 2019, are expected to be fully amortized during 2019.

Convertible Promissory Notes – Exchange Notes.

In 2017, the Company entered into Debt Settlement Agreements (the “Settlement Agreements”) with certain of its accounts payable and accrued liability vendors (the “Creditors”) pursuant to which the Creditors, who were owed $6.3 million (the “Debt Obligations”) by the Company, agreed to reduce and exchange the Debt Obligations for a secured obligation in the amount of $3.2 million, $1.9 million in shares of the Company’s common stock and 7,207 warrants to purchase shares of the Company’s common stock (“Creditor Warrants”).

During 2018, the Company entered into Exchange Agreements (the “Exchange Agreements”) with three institutional investors (the “Holders”) pursuant to which the Company issued or shall issue convertible promissory notes, due January 1, 2021 (the “Exchange Notes”) in exchange (the “Exchange”) for amounts owed to the Holders pursuant to certain debt settlement agreements, dated October 31, 2017. At the time of the Exchange Agreements, $3.2 million of Secured Debt Obligations were exchanged for $2.8 million of Exchange Notes (the “Exchange Notes”). Pursuant to the terms of the Exchange Notes, the Company shall pay to the Holders the aggregate principal amount of the Exchange Notes in eighteen equal installments beginning on August 1, 2019 and ending on January 1, 2021.

The Company reviewed the Conversion Option and concluded that it meets the criteria for derivative accounting and requires bifurcation and separate accounting as a derivative. The Company determined the initial fair value of the derivative at the time of issuance to be approximately $0.4 million which was recorded as a debt discount with an offset to derivative liability. See Note 9 –Fair Value for further discussion.

The Company reviewed the Company Put Option and concluded that it meets the criteria for derivative accounting and requires bifurcation and separate accounting as a derivative. The Company determined the initial fair value of the derivative at the time of issuance to be immaterial.

Since the issuance of the Exchange Notes, the Holders have converted all $2.8 million into a total of 446,913 shares of common stock of the Company. This included the conversion of approximately $0.6 million of Exchange Notes converted into 155,351 shares of common stock of the Company during the three months ended March 31, 2019 and approximately $2.2 million of Exchange Notes converted into 291,562 shares of common stock of the Company during the fourth quarter of 2018.

As of March 31, 2019 and December 31, 2018, the outstanding balance of the Exchange Notes, net of discounts, was zero and $0.6 million, respectively, and was presented within convertible notes in the Company’s condensed consolidated balance sheets.

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During the three months ended March 31, 2019, the change in Exchange Note debt discounts was as follows:

 

 

 

 

(Dollars in thousands)

 

 

2019

Beginning balance at January 1

 

$

83

Deductions:

 

 

 

Amortization  (1)

 

 

(2)

Write-off related to note conversions  (2)

 

 

(81)

Balance at March 31

 

$

 —

(1)

Amortization is recognized as interest expense within the condensed consolidated statements of operations based on the effective interest method.

(2)

Write-offs associated with note conversions are recognized as an offset to additional paid-in capital at the time of the conversion.

 

As a result of the conversions, the Company has also written off approximately $0.4 million of derivative liability with an offset to additional paid-in capital, of which less than $0.1 million was during the three months ended March 31, 2019.

 

Convertible Promissory Notes – Crede Note.

On January 15, 2019, the Company and Crede Capital Group LLC (“Crede”) entered into an amendment and restatement agreement (the “Crede Amendment Agreement”) in order to enable the Company to provide Crede with an alternative means of payment of a previous settlement amount, See Note 5 – Accrued Expenses and Other Current Liabilities, by issuing to Crede a convertible note in the amount of $1.45 million (the “Crede Note”). The conversion price of the Crede Note shall equal 90% of the closing bid price of the Company’s common stock on the date prior to each conversion date. The Crede Note is payable by the Company on the earlier of (i) January 15, 2021 or (ii) upon the closing of a qualified offering in which the Company receives gross proceeds of at least $4.0 million. The Crede Note may not be converted if, after giving effect to the conversion, Crede together with its affiliates would beneficially own in excess of 4.99% of the outstanding shares of the Company’s common stock. The Company, at its option, may redeem some or all of the then outstanding principal amount of the Crede Note for cash.

 

In accordance with the terms of the Crede Amendment Agreement, during the period commencing on the date of issuance of the Crede Note and ending on the date Crede no longer beneficially owns any portion of the Crede Note, Crede shall not sell, on any given trading day, more than the greater of (i) $10,000 of common stock (subject to adjustment for any stock splits or combinations, stock dividends, recapitalizations or similar event after the date hereof) and (ii) 10% of the daily average composite trading volume of the Company’s common stock as reported by Bloomberg, LP (subject to adjustment for any stock splits or combinations, stock dividends, recapitalizations or similar event after the date hereof) for such trading day.

 

During the three months ended March 31, 2019, the Company made no payments on, and there were no conversions of, the Crede Note.

 

Convertible Promissory Notes – Leviston Note

 

On February 8, 2018, the Company entered into an equity purchase agreement (the “2018 Purchase Agreement”) with Leviston Resources LLC (“Leviston”), see Note 8 – Stockholders Equity for details of the 2018 Purchase Agreement. On January 29, 2019, the Company entered into a settlement agreement (the “Leviston Settlement”) with Leviston pursuant to which the Company issued to Leviston a convertible note in the amount of $0.7 million (the “Leviston Note”) in full satisfaction of certain obligations to Leviston. The Leviston Note is payable by the Company (i) in fourteen equal monthly installments commencing on the earlier to occur of (x) the last day of the month upon which a registration statement to be filed by the Company covering the resale of the shares of common stock underlying the Leviston Note is declared effective by the Securities and Exchange Commission and (y) the six month anniversary of the date of issuance, (ii) upon the closing of a qualified offering, namely the Company raising gross proceeds of at least $4.0 million or (iii) such earlier date as the

15


 

Leviston Note is required or permitted to be repaid pursuant to its terms. The Company, at its option, may redeem some or the entire then outstanding principal amount of the Leviston Note for cash.

 

The conversion price in effect on any conversion date shall equal the VWAP of the common stock on such Conversion Date. The Leviston Note may not be converted if, after giving effect to the conversion, Leviston together with its affiliates, would beneficially own in excess of 4.99% of the outstanding shares of the Company’s common stock.

 

In accordance with the terms of the Leviston Settlement, during the period commencing on the issuance date of the Leviston Note and ending on the date Leviston no longer beneficially owns any shares of common stock issuable upon conversion of the Leviston Note, Leviston shall not sell, on any given trading day, more than the greater of (i) $10,000 of common stock (subject to adjustment for any stock splits or combinations, stock dividends, recapitalizations or similar event after the date hereof) and (ii) 10% of the daily average composite trading volume of the Company’s common stock as reported by Bloomberg, LP (subject to adjustment for any stock splits or combinations, stock dividends, recapitalizations or similar event after the date hereof) for such trading day.

 

In addition to the Leviston Settlement and the Leviston Note, the Company and Leviston have each executed a release pursuant to which each of the Company and Leviston agreed to release the other party from their respective obligations arising from or concerning the Obligations.

 

During the three months ended March 31, 2019, the Company made cash payments of less than $0.1 million on the Leviston Note and $0.2 million of the Leviston note was converted into 73,333 shares of common stock of the Company. As of March 31, 2019, the $0.5 million outstanding balance of the Leviston Note was included in convertible notes in the Company’s condensed consolidated balance sheets. There were no amounts outstanding related to this note as of December 31, 2018.

 

5. ACCRUED EXPENSES OTHER CURRENT LIABILITIES.

Accrued expenses at March 31, 2019 and December 31, 2018 are as follows:

 

 

 

 

 

 

 

(dollars in thousands)

    

March 31, 2019

    

December 31, 2018

Accrued expenses

 

$

1,365

 

$

1,583

Accrued compensation

 

 

187

 

 

118

Accrued interest

 

 

99

 

 

239

 

 

$

1,651

 

$

1,940

 

During the three months ended March 31, 2019 and 2018, the Company was able to reduce approximately $0.2 million and $0.1 million, respectively, of certain accrued expense and accounts payable amounts through negotiations with certain vendors to settle outstanding liabilities and the Company recorded a gains of $0.2 million in the first quarter of 2019 and $0.1 million in the first quarter of 2018 which are included in gain on settlement of liability, net in the condensed consolidated statements of operations.

Other current liabilities are as follows:

 

 

 

 

 

 

 

(dollars in thousands)

    

March 31, 2019

    

December 31, 2018

Liability related to equity purchase agreement

 

 

 —

 

 

460

Liability for settlement of equity instrument

 

 

 —

 

 

1,450

 

 

$

 —

 

$

1,910

 

On February 20, 2018, Crede filed a lawsuit against the Company in the Supreme Court of the State of New York for Summary Judgment in Lieu of Complaint requiring the Company to pay cash owed to Crede. On March 12, 2018, Precipio entered into a settlement agreement (the “Crede Agreement”) with Crede pursuant to which Precipio agreed to pay Crede a total sum of $1.925 million over a period of 16 months payable in cash, or at the Company’s discretion, in stock, in accordance with terms contained in the Crede Agreement.

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As of the date of the Crede Agreement, the fair value of the common stock warrant liability related to Crede was revalued to approximately $0.4 million, resulting in a gain of $0.2 million included in warrant revaluation in the unaudited condensed consolidated statement of operations during the three months ended March 31, 2018. At the time of the Crede Agreement, the Company recorded $1.5 million in other current liabilities and $0.4 million in other long-term liabilities, thus replacing its previous $1.1 million in other current liabilities and $0.4 million common stock warrant liability. This resulted in the Company recording an additional loss of $0.4 million, which is included in loss on settlement of equity instruments in the unaudited condensed consolidated statement of operations during the three months ended March 31, 2018. During 2018, the Company paid approximately $0.5 million to Crede. As of December 31, 2018, the Company had recorded liabilities relating to Crede of $1.45 million in other current liabilities on the accompanying condensed consolidated balance sheets and, on January 15, 2019 the $1.45 million liability was replaced with the Crede Note.

 

As of December 31, 2018, the Company had recorded a liability of approximately $0.5 million related to an equity purchase agreement with Leviston, which is included in other current liabilities on our condensed consolidated balance sheet. On January 29, 2019, the Company entered into the Leviston Settlement pursuant to which the Company issued the Leviston Note in full satisfaction of the $0.5 million discussed above along with approximately $0.2 million of other obligations owed to Leviston which are included in accrued expenses in our condensed consolidated balance sheet at December 31, 2018. See Note 4 – Convertible Notes.

6. 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

On February 21, 2017, XIFIN, Inc. (“XIFIN”) filed a lawsuit against us in the District Court for the Southern District of California alleging breach of written contract and seeking recovery of approximately $0.27 million owed by us to XIFIN for damages arising from a breach of our obligations pursuant to a Systems Services Agreement between us and XIFIN, dated as of February 22, 2013, as amended and restated on September 1, 2014. On April 5, 2017, the court clerk entered default against the Company. On May 5, 2017, XIFIN filed an application for entry of default judgment against us. A liability of $0.1 million is reflected in accounts payable within the accompanying condensed consolidated balance sheet at March 31, 2019 and December 31, 2018, respectively. On April 19, 2019, the Company executed a settlement agreement with XIFIN pursuant to which the Company paid to XIFIN an agreed amount as settlement in consideration for total release from all outstanding amounts due and payable by the Company to XIFIN. The settlement amount was paid by the Company on April 19, 2019 and there is no remaining amount due to XIFIN as of the filing of this Quarterly Report on Form 10-Q.

CPA Global provides us with certain patent management services. On February 6, 2017, CPA Global claimed that we owe 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 approximately less than $0.1 million has been recorded and is reflected in accounts payable within the accompanying condensed consolidated balance sheets at March 31, 2019 and December 31, 2018.

On February 17, 2017, Jesse Campbell (“Campbell”) filed a lawsuit individually and on behalf of others similarly situated against us in the District Court for the District of Nebraska alleging we had a materially incomplete and misleading proxy relating to a potential merger and that the merger agreement’s deal protection provisions deter superior offers. As a result, Campbell alleges that we have violated Sections 14(a) and 20(a) of the Exchange Act and Rule 14a‑9 promulgated thereafter. The Company filed a motion to dismiss all claims, which motion was fully briefed on November 27, 2017. The Court granted the Company’s motion in full on May 3, 2018 and dismissed the lawsuit. The Eighth Circuit reversed the decision of the District Court and remanded the case back to the District Court on March 1, 2019.

On March 21, 2018, Bio-Rad Laboratories filed a lawsuit against us in the Superior Court Judicial Branch of the State of Connecticut for Summary Judgment in Lieu of Complaint requiring us to pay cash owed to Bio-Rad in the amount

17


 

of $39,000. A liability of approximately $39,000 has been recorded in accounts payable within the accompanying condensed consolidated balance sheet at March 31, 2019 and December 31, 2018.  On April 2, 2019, the Superior Court issued a subpoena commanding the Company to appear before the Superior Court on May 13, 2019. Subsequent to April 2, 2019, the Company paid Bio-Rad approximately $39,000, plus interest, and there is no remaining amount due to Bio-Rad as of the filing of this Quarterly Report on Form 10-Q.

OTHER COMMITMENTS

On January 2, 2019, the Company entered into a settlement agreement with a third party service provider pursuant to which we agreed to pay the service provider an aggregate amount of approximately $0.6 million, plus accrued interest at a rate of 8%, pursuant to an agreed upon payment schedule, ending in September 2019, in consideration for the cancellation of an outstanding debt owed by the Company to the service provider in the aggregate amount of approximately $1.5 million (the “Owed Amount”). Upon payment in full of the $0.6 million and compliance with the payment schedule, the service provider has agreed to waive the difference between the settlement amount and the Owed Amount and at that time the Company would record a gain on settlement of approximately $0.9 million. During the three months ended March 31, 2019, the Company made payments of $0.2 million to the service provider. A liability of approximately $1.3 million and $1.5 million has been recorded and is reflected in accounts payable within the accompanying condensed consolidated balance sheets at March 31, 2019 and December 31, 2018.

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.

7. LEASES

On January 1, 2019, the Company recorded initial ROU assets and corresponding operating lease liabilities of approximately $750,000 and a reversal of deferred rent and prepaid expenses of approximately $6,000 resulting in no cumulative effect adjustment upon adoption of Topic 842. The Company leases administrative facilities and laboratory equipment through operating lease agreements. In addition we rent various equipment used in our diagnostic lab and in our administrative offices through finance lease arrangements.  Our operating leases include both lease (e.g., fixed payments including rent) and non-lease components (e.g., common area or other maintenance costs). The facility leases include one or more options to renew, from 1 to 5 years or more. The exercise of lease renewal options is typically at our sole discretion, therefore, the renewals to extend the lease terms are not included in our 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

18


 

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.

Upon the adoption of Topic 842, our accounting for finance leases, previously referred to as capital leases, remains substantially unchanged from prior guidance.

The balance sheet presentation of our operating and finance leases is as follows:

 

 

 

 

 

(dollars in thousands)

Classification on the Condensed Consolidated Balance Sheet

 

March 31, 2019

 

 

 

 

 

Assets:

 

 

 

 

Operating lease assets

Operating lease right-of-use assets

 

$

689

Finance lease assets

Property and equipment, net

 

 

208

Total lease assets

 

 

$

897

 

 

 

 

 

Liabilities:

 

 

 

 

Current:

 

 

 

 

Operating lease obligations

Current maturities of operating lease liabilities

 

$

221

Finance lease obligations

Current maturities of finance lease liabilities

 

 

58

Noncurrent:

 

 

 

 

Operating lease obligations

Operating lease liabilities, less current maturities

 

 

470

Finance lease obligations

Finance lease liabilities, less current maturities

 

 

140

Total lease liabilities

 

 

$

889

 

As of March 31, 2019, the estimated future minimum lease payments, excluding non-lease components, are as follows:

 

 

 

 

 

 

 

 

 

 

(dollars in thousands)

    

Operating Leases

 

Finance Leases

 

Total

Remainder of 2019

 

$

201

 

$

53

 

$

254

2020

 

 

242

 

 

46

 

 

288

2021

 

 

241

 

 

38

 

 

279

2022