Precipio, Inc. [PRPO] Filings

10-Q 1 prpo-20230630x10q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2023

	OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _____ to _____

Commission File Number: 001-36439

PRECIPIO, INC.

(Exact name of registrant as specified in its charter)


Delaware	91-1789357
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

4 Science Park, New Haven, CT	06511
(Address of principal executive offices)	(Zip Code)

(203) 787-7888

(Registrant’s telephone number, including area code)

	a
Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	PRPO	The Nasdaq Capital Market

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 ☒ 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 ☒ No ◻

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

Large accelerated filer	◻	Accelerated filer	◻
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

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

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

As of August 8, 2023, the number of shares of common stock outstanding was 27,562,298.

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PRECIPIO, INC. AND SUBSIDIARIES

INDEX

		Page No.

PART I.	Financial Information	3

Item 1.	Condensed Consolidated Financial Statements	3

	Condensed Consolidated Balance Sheets at June 30, 2023 (unaudited) and December 31, 2022	3

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022 (unaudited)	4

	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022 (unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022 (unaudited)	7

	Notes to Unaudited Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33

Item 4.	Controls and Procedures	34

PART II.	Other Information	35

Item 1.	Legal Proceedings	35

Item 1A.	Risk Factors	35

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 3.	Defaults Upon Senior Securities	39

Item 4.	Mine Safety Disclosures	39

Item 5.	Other Information	39

Item 6.	Exhibits	39

Signatures		41

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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, 2023
	(unaudited)		December 31, 2022
ASSETS
CURRENT ASSETS:
Cash	$	2,573	$	3,445
Accounts receivable, net		884		1,036
Inventories		537		708
Other current assets		354		521
Total current assets		4,348		5,710

PROPERTY AND EQUIPMENT, NET		791		877

OTHER ASSETS:
Finance lease right-of-use assets, net		214		257
Operating lease right-of-use assets, net		722		763
Intangibles, net		13,293		13,768
Other assets		104		129
Total assets	$	19,472	$	21,504
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt, less debt issuance costs	$	27	$	255
Current maturities of finance lease liabilities		155		162
Current maturities of operating lease liabilities		225		199
Accounts payable		2,402		2,042
Accrued expenses		1,895		1,584
Deferred revenue		17		119
Total current liabilities		4,721		4,361
LONG TERM LIABILITIES:
Long-term debt, less current maturities and debt issuance costs		120		134
Finance lease liabilities, less current maturities		31		68
Operating lease liabilities, less current maturities		509		574
Total liabilities		5,381		5,137
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS’ EQUITY:
Preferred stock - $0.01 par value, 15,000,000 shares authorized at June 30, 2023 and December 31, 2022, 47 shares issued and outstanding at June 30, 2023 and December 31, 2022, liquidation preference of $46 at June 30, 2023		—		—
Common stock, $0.01 par value, 150,000,000 shares authorized at June 30, 2023 and December 31, 2022, 27,562,298 and 22,820,260 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively		275		228
Additional paid-in capital		111,371		108,371
Accumulated deficit		(97,620)		(92,297)
Total Precipio, Inc. stockholders’ equity		14,026		16,302
Noncontrolling interest in joint venture		65		65
Total stockholders’ equity		14,091		16,367
Total liabilities and stockholders’ equity	$	19,472	$	21,504

See notes to unaudited condensed consolidated financial statements.

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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,
	2023		2022		2023		2022
SALES:
Service revenue, net	$	2,768	$	2,226	$	4,836	$	4,231
Other revenue		877		220		1,638		742
Revenue, net of contractual allowances and adjustments		3,645		2,446		6,474		4,973
Adjustment for allowance for doubtful accounts		(112)		(87)		(124)		(167)
Net sales		3,533		2,359		6,350		4,806
COST OF SALES:
Cost of service revenue		1,880		1,366		3,649		2,902
Cost of other revenue		282		220		581		428
Total cost of sales		2,162		1,586		4,230		3,330
Gross profit		1,371		773		2,120		1,476
OPERATING EXPENSES:
Operating expenses		3,663		3,206		7,438		8,718
OPERATING LOSS		(2,292)		(2,433)		(5,318)		(7,242)
OTHER (EXPENSE) INCOME:
Interest expense, net		(1)		(2)		(5)		—
Warrant revaluation		–		297		–		519
Gain on settlement of liability		–		–		–		1
Total other (expense) income		(1)		295		(5)		520
LOSS BEFORE INCOME TAXES		(2,293)		(2,138)		(5,323)		(6,722)
INCOME TAX EXPENSE		–		–		–		—
NET LOSS		(2,293)		(2,138)		(5,323)		(6,722)

Less: Net income attributable to noncontrolling interest in joint venture		–		(6)		–		(12)
NET LOSS ATTRIBUTABLE TO PRECIPIO, INC. COMMON STOCKHOLDERS	$	(2,293)	$	(2,144)	$	(5,323)	$	(6,734)

BASIC AND DILUTED LOSS PER COMMON SHARE	$	(0.09)	$	(0.09)	$	(0.22)	$	(0.30)
BASIC AND DILUTED WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING		24,362,785		22,708,708		23,790,491		22,708,648

See notes to unaudited condensed consolidated financial statements.

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PRECIPIO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars in thousands)

(unaudited)


	For the Three Months Ended June 30, 2023
	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, 2023	47	$	—	23,364,086	$	233	$	109,254	$	(95,327)	$	14,160	$	65	$	14,225
Net (loss) income	—		—	—		—		—		(2,293)		(2,293)		—		(2,293)
Issuance of common stock in connection with purchase agreements, net of issuance costs	—		—	4,125,000		41		1,719		—		1,760		—		1,760
Issuance of common stock in connection with at the market offering, net of issuance costs	—		—	73,212		1		46		—		47		—		47
Stock-based compensation	—		—	—		—		352		—		352		—		352
Balance, June 30, 2023	47	$	—	27,562,298	$	275	$	111,371	$	(97,620)	$	14,026	$	65	$	14,091

	For the Six Months Ended June 30, 2023
	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, 2023	47	$	—	22,820,260	$	228	$	108,371	$	(92,297)	$	16,302	$	65	$	16,367
Net (loss) income	—		—	—		—		—		(5,323)		(5,323)		—		(5,323)
Issuance of common stock in connection with purchase agreements	—		—	4,125,000		41		1,719		—		1,760		—		1,760
Issuance of common stock in connection with at the market offering, net of issuance costs	—		—	617,038		6		479		—		485		—		485
Stock-based compensation	—		—	—		—		802		—		802		—		802
Balance, June 30, 2023	47	$	—	27,562,298	$	275	$	111,371	$	(97,620)	$	14,026	$	65	$	14,091

See notes to unaudited condensed consolidated financial statements.

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PRECIPIO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars in thousands)

(unaudited)


	For the Three Months Ended June 30, 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	47	$	—	22,708,708	$	227	$	106,663	$	(84,684)	$	22,206	$	46	$	22,252
Net loss	—		—	—		—		—		(2,144)		(2,144)		6		(2,138)
Stock-based compensation	—		—	—		—		451		—		451		—		451
Balance, June 30, 2022	47	$	—	22,708,708	$	227	$	107,114	$	(86,828)	$	20,513	$	52	$	20,565

	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, 2022	47	$	—	22,708,442	$	227	$	104,431	$	(80,094)	$	24,564	$	40	$	24,604
Net loss	—		—	—		—		—		(6,734)		(6,734)		12		(6,722)
Proceeds upon issuance of common stock from exercise of warrants	—		—	266		—		—		—		—		—		—
Stock-based compensation	—		—	—		—		2,683		—		2,683		—		2,683
Balance, June 30, 2022	47	$	—	22,708,708	$	227	$	107,114	$	(86,828)	$	20,513	$	52	$	20,565

See notes to unaudited condensed consolidated financial statements

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PRECIPIO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(unaudited)


	Six Months Ended June 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(5,323)	$	(6,722)

Adjustments to reconcile net loss to net cash flows used in operating activities:
Depreciation and amortization		621		604
Amortization of operating lease right-of-use asset		99		93
Amortization of finance lease right-of-use asset		43		67
Amortization of deferred financing costs, debt discounts and debt premiums		1		2
Gain on settlement of liability		—		(1)
Stock-based compensation		802		2,683
Provision for losses on doubtful accounts		124		165
Warrant revaluation		—		(519)
Changes in operating assets and liabilities:
Accounts receivable		28		(595)
Inventories		171		(78)
Other assets		192		207
Accounts payable		353		692
Operating lease liabilities		(97)		(90)
Deferred revenue		(102)		(5)
Accrued expenses		311		(483)
Net cash used in operating activities		(2,777)		(3,980)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(54)		(106)
Net cash used in investing activities		(54)		(106)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on finance lease obligations		(44)		(95)
Issuance of common stock, net of issuance costs		2,245		—
Principal payments on long-term debt		(242)		(14)
Net cash flows provided by (used in) financing activities		1,959		(109)
NET CHANGE IN CASH		(872)		(4,195)
CASH AT BEGINNING OF PERIOD		3,445		11,668
CASH AT END OF PERIOD	$	2,573	$	7,473

See notes to unaudited condensed consolidated financial statements.

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PRECIPIO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS- CONTINUED

(Dollars in thousands)

(unaudited)


	Six Months Ended June 30,
	2023		2022
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest	$	18	$	19

SUPPLEMENTAL DISCLOSURE OF CONSULTING SERVICES OR ANY OTHER NON-CASH COMMON STOCK RELATED ACTIVITY
Purchases of equipment financed through accounts payable		7		7
Operating lease right-of-use assets obtained in exchange for operating lease obligations		58		92

See notes to unaudited condensed consolidated financial statements.

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PRECIPIO, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Ended June 30, 2023 and 2022

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.

The Company is working with Poplar Healthcare PLLC (“Poplar”) to dissolve the Joint Venture with an effective date of December 31, 2022. This is expected to be completed in Q4 2023.

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, 2023, the Company had a net loss of $5.3 million and net cash used in operating activities of $2.8 million. As of June 30, 2023, the Company had an accumulated deficit of $97.6 million and a negative working capital of $0.4 million. The Company’s ability to continue as a going concern over the next twelve months from the date of issuance of these condensed consolidated financial statements in this Quarterly Report on Form 10-Q is dependent upon a combination of achieving its

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business plan, including generating additional revenue and avoiding potential business disruption due to the macroeconomic environment and the coronavirus (“COVID-19”) pandemic, and raising additional financing to meet its debt obligations and paying liabilities arising from normal business operations when they come due.

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

●

On April 14, 2023, the Company entered into a sales agreement with AGP, pursuant to which the Company may offer and sell its common stock having aggregate sales proceeds of up to $5.8 million, to or through AGP, as sales agent (the “AGP 2023 Sales Agreement”). The sale of our shares of Common Stock to or through AGP, pursuant to the AGP 2023 Sales Agreement, will be made pursuant to the registration statement (the “2023 Registration Statement”) on Form S-3 (File No. 333-271277), filed by the Company with the SEC on April 14, 2023, as amended by Amendment No. 1 filed by the Company with the SEC on April 25, 2023, and declared effective on April 27, 2023. As of the date the condensed consolidated financial statements were issued, we have received less than $1 thousand in gross proceeds through the AGP 2023 Sales Agreement from the sale of 500 shares of common stock. The Company has approximately $3.8 million available for future sales pursuant to the AGP 2023 Sales Agreement. See Note 7 Stockholders’ Equity, AGP 2023 Sales Agreement, for further discussion.

●

On June 8, 2023, the Company entered into a securities purchase agreement pursuant to which it received $2.0 million in gross proceeds through the sale of 4,125,000 shares of common stock and warrants to purchase shares of our common stock. Issuance costs were approximately $0.2 million and the Company intends to use the net proceeds for working capital and general corporate purposes. See Note 7 Stockholders’ Equity, Registered Direct Offering, for further discussion.

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, 2023 and for the three and six months ended June 30, 2023 and 2022, 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, 2022 contained in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2023. The results of operations for the interim periods presented are not necessarily indicative of the results for fiscal year 2023.

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.

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Reclassification.

Certain reclassifications were made to the statements of cash flows related to splitting accruals and deferred revenue to separate lines in order to conform to the 2023 presentation. These reclassifications had no effect on previously reported retained earnings, net income, total assets or liabilities, or cash flows used in operating activities.

Recently Adopted Accounting Pronouncements.

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. The Company adopted this guidance on January 1, 2023. 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, 2023. 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.

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. Shares of the Company’s common stock underlying pre-funded warrants are included in the calculation of basic and diluted loss per share due to the negligible exercise price of the pre-funded warrants. Options, warrants and conversion rights pertaining to 14,183,186 and 4,600,457 shares of our common stock have been excluded from the computation of diluted loss per share at June 30, 2023 and 2022, respectively, because the effect is anti-dilutive due to the net loss.

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


	June 30,
	2023	2022
Stock options	4,636,043	3,660,457
Warrants	9,429,643	822,500
Preferred stock	117,500	117,500
Total	14,183,186	4,600,457

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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, 2023		December 31, 2022
Assets:
Accounts receivable, net	$	224	$	335
Total assets	$	224	$	335
Liabilities:
Accrued expenses	$	17	$	50
Total liabilities	$	17	$	50
Noncontrolling interest in Joint Venture	$	65	$	65
Total stockholders' equity	$	127	$	127

3. LONG-TERM DEBT

Long-term debt consists of the following:


	Dollars in Thousands
	June 30, 2023		December 31, 2022
Connecticut Department of Economic and Community Development (DECD)	$	161	$	176
DECD debt issuance costs		(14)		(15)
Financed insurance loan		—		228
Total long-term debt		147		389
Current portion of long-term debt		(27)		(255)
Long-term debt, net of current maturities	$	120	$	134

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 $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%. The maturity date of the DECD 2018 Loan was extended to May 31, 2028 and the modification did not have a material impact on the Company’s cash flows.

Amortization of the debt issuance costs were less than $1 thousand for the three months ended June 30, 2023 and 2022, respectively, and $1 thousand and $2 thousand for the six months ended June 30, 2023 and 2022, respectively.

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Financed Insurance Loan.

The Company finances certain of its insurance premiums (the “Financed Insurance Loans”). In July 2022, the Company financed $0.4 million with a 5.99% interest rate and is obligated to make payments on a monthly basis through June 2023. As of June 30 2023 and December 31, 2022, the Financed Insurance Loan’s outstanding balance of zero 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.

4. ACCRUED EXPENSES OTHER CURRENT LIABILITIES.

Accrued expenses at June 30, 2023 and December 31, 2022 are as follows:


(dollars in thousands)	June 30, 2023		December 31, 2022
Accrued expenses	$	1,004	$	983
Accrued compensation		758		491
Accrued franchise, property and sales and use taxes		114		91
Accrued interest		19		19
	$	1,895	$	1,584

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 months ended June 30, 2023 and 2022, there were no gains recorded on settlements of liability. During the six months ended June 30, 2023 and 2022, zero and $1 thousand, respectively, were recorded as a gain on settlement of liability.

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.

PURCHASE COMMITMENTS

The Company has entered into purchase commitments for reagents from suppliers. These agreements started in 2011 and run through 2025. The Company and the suppliers will true up the amounts on an annual basis. The future minimum purchase commitments under these and other purchase agreements are approximately $0.8 million and $1.3 million at June 30, 2023 and December 31, 2022, respectively.

LITIGATIONS

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, 2023 and December 31, 2022.

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.

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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 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 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.

The Company also recognizes ROU assets from finance leases in connection with its HemeScreen Reagent Rental (“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 no derecognized finance lease ROU assets for the three and six months ended June 30, 2023 and 2022, respectively. Where Precipio is the lessor, customers lease diagnostic testing equipment from the Company with the transfer of ownership to the customer at the end of the lease term at no additional cost. For these contracts, the Company accounts for the arrangements as sales-type leases. The lease asset for sales-type leases is the net investment in leased asset, which is recorded once the finance lease ROU asset is derecognized and a related gain or loss is noted. The net investment in leased assets was $0.1 million as of June 30, 2023 and December 31, 2022, respectively, and is included in other current assets and other assets in our condensed consolidated balance sheets.

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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, 2023		December 31, 2022
Assets:
Operating lease right-of-use assets, net	$	722	$	763
Finance lease right-of-use assets, net (1)		214		257
Total lease assets	$	936	$	1,020

Liabilities:
Current:
Current maturities of operating lease liabilities	$	225	$	199
Current maturities of finance lease liabilities		155		162
Noncurrent:
Operating lease liabilities, less current maturities		509		574
Finance lease liabilities, less current maturities		31		68
Total lease liabilities	$	920	$	1,003

(1)

As of June 30, 2023 and December 31, 2022, finance lease right-of-use assets included $5 thousand and $13 thousand, respectively, of assets related to finance leases associated with the HSRR program.

As of June 30, 2023 and December 31, 2022, the estimated future minimum lease payments, excluding non-lease components, are as follows:


(dollars in thousands)	Operating Leases		Finance Leases		Total
		June 30,		June 30,		June 30,
		2023		2023		2023
2023 (remaining)	$

Precipio, Inc. [PRPO] Filings
10-Q	[2023-08-11]
S-1	[2023-07-07]
10-Q	[2023-05-12]
10-K	[2023-03-30]
10-Q	[2022-11-10]
10-Q	[2022-08-11]
10-Q	[2022-05-11]
10-K	[2022-03-30]
10-Q	[2021-11-12]
10-Q	[2021-08-12]
10-Q	[2021-05-14]
10-K	[2021-03-29]
10-Q	[2020-11-13]
10-Q	[2020-08-13]
S-1	[2020-06-26]
10-Q	[2020-05-14]
10-K	[2020-03-27]
S-1	[2020-03-27]
S-1	[2020-01-14]
10-Q	[2019-11-13]
10-Q	[2019-08-09]
S-1	[2019-08-09]
10-Q	[2019-05-16]
10-K	[2019-04-16]
S-1	[2019-02-01]
10-Q	[2018-11-19]
S-1	[2018-09-14]
10-Q	[2018-08-16]
10-Q	[2018-05-21]
S-1	[2018-04-16]
10-K	[2018-04-13]
10-Q	[2017-11-20]
10-Q	[2017-08-22]
10-Q	[2017-05-18]
10-K	[2017-04-13]
10-Q	[2016-11-14]
10-Q	[2016-08-15]
10-Q	[2016-05-23]
10-K	[2016-04-14]
10-Q	[2015-11-16]
10-Q	[2015-08-14]
10-Q	[2015-05-14]
10-K	[2015-04-15]
10-Q	[2014-11-12]
10-Q	[2014-08-08]
10-Q	[2014-05-15]
10-K	[2014-03-27]
10-Q	[2013-11-14]
10-Q	[2013-08-08]
10-Q	[2013-05-09]
S-1	[2013-03-15]
10-K	[2013-03-14]
10-Q	[2012-11-08]
10-Q	[2012-08-02]
10-Q	[2012-05-09]
S-1	[2012-03-21]
10-K	[2012-03-14]