Precipio, Inc. [PRPO] Filings

10-Q 1 prpo-20240630x10q.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, 2024

	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 9, 2024, the number of shares of common stock outstanding was 1,482,133.

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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, 2024 (unaudited) and December 31, 2023	3

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2024 and 2023 (unaudited)	4

	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2024 and 2023 (unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023 (unaudited)	7

	Notes to Unaudited Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33

Item 4.	Controls and Procedures	33

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	38

Item 3.	Defaults Upon Senior Securities	38

Item 4.	Mine Safety Disclosures	38

Item 5.	Other Information	38

Item 6.	Exhibits	39

Signatures		40

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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)


	(unaudited)
	June 30, 2024		December 31, 2023
ASSETS
CURRENT ASSETS:
Cash	$	1,279	$	1,502
Accounts receivable (net of allowance for credit losses of $2,684 and $2,572, respectively)		1,107		1,301
Inventories		653		384
Other current assets		325		495
Total current assets		3,364		3,682

PROPERTY AND EQUIPMENT, NET		683		739

OTHER ASSETS:
Finance lease right-of-use assets, net		372		174
Operating lease right-of-use assets, net		498		612
Intangibles, net		12,343		12,818
Other assets		58		76
Total assets	$	17,318	$	18,101
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt, less debt issuance costs	$	249	$	235
Current maturities of finance lease liabilities		105		132
Current maturities of operating lease liabilities		208		218
Accounts payable		855		622
Accrued expenses		2,918		1,824
Deferred revenue		260		110
Total current liabilities		4,595		3,141
LONG TERM LIABILITIES:
Long-term debt, less current maturities and debt issuance costs		92		106
Finance lease liabilities, less current maturities		215		18
Operating lease liabilities, less current maturities		301		407
Total liabilities		5,203		3,672
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS’ EQUITY:
Preferred stock - $0.01 par value, 15,000,000 shares authorized at June 30, 2024 and December 31, 2023, 47 shares issued and outstanding at June 30, 2024 and December 31, 2023, liquidation preference of $30 at June 30, 2024		—		—
Common stock, $0.01 par value, 150,000,000 shares authorized at June 30, 2024 and December 31, 2023, 1,469,540 and 1,420,125 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively		14		14
Additional paid-in capital		113,550		112,565
Accumulated deficit		(101,449)		(98,150)
Total stockholders’ equity		12,115		14,429
Total liabilities and stockholders’ equity	$	17,318	$	18,101

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,
	2024		2023		2024		2023
SALES:
Service revenue, net	$	3,909	$	2,768	$	6,730	$	4,836
Product revenue		598		877		1,255		1,638
Revenue, net of contractual allowances and adjustments		4,507		3,645		7,985		6,474
Adjustment for allowance for credit losses		(66)		(112)		(112)		(124)
Net sales		4,441		3,533		7,873		6,350
COST OF SALES:
Cost of service revenue		2,425		1,880		4,526		3,649
Cost of product revenue		300		282		711		581
Total cost of sales		2,725		2,162		5,237		4,230
Gross profit		1,716		1,371		2,636		2,120
OPERATING EXPENSES:
Operating expenses		2,925		3,663		5,919		7,438
OPERATING LOSS		(1,209)		(2,292)		(3,283)		(5,318)
OTHER (EXPENSE) INCOME:
Interest expense, net		(11)		(1)		(16)		(5)
LOSS BEFORE INCOME TAXES		(1,220)		(2,293)		(3,299)		(5,323)
INCOME TAX EXPENSE		–		–		–		—
NET LOSS	$	(1,220)	$	(2,293)	$	(3,299)	$	(5,323)

BASIC AND DILUTED LOSS PER COMMON SHARE	$	(0.83)	$	(1.88)	$	(2.28)	$	(4.50)
BASIC AND DILUTED WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING		1,463,543		1,218,139		1,444,742		1,189,525

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, 2024
	Preferred Stock			Common Stock			Additional
	Outstanding	Par		Outstanding	Par		Paid-in		Accumulated
	Shares	Value		Shares	Value		Capital		Deficit		Total
Balance, April 1, 2024	47	$	—	1,430,292	$	14	$	112,989	$	(100,229)	$	12,774
Net loss	—		—	—		—		—		(1,220)		(1,220)
Issuance of common stock in connection with at the market offering, net of issuance costs	—		—	1,655		—		11		—		11
Issuance of common stock for consulting services	—		—	37,593		—		251		—		251
Stock-based compensation	—		—	—		—		299		—		299
Balance, June 30, 2024	47	$	—	1,469,540	$	14	$	113,550	$	(101,449)	$	12,115

	For the Six Months Ended June 30, 2024
	Preferred Stock			Common Stock			Additional
	Outstanding	Par		Outstanding	Par		Paid-in		Accumulated
	Shares	Value		Shares	Value		Capital		Deficit		Total
Balance, January 1, 2024	47	$	—	1,420,125	$	14	$	112,565	$	(98,150)	$	14,429
Net loss	—		—	—		—		—		(3,299)		(3,299)
Issuance of common stock in connection with at the market offering, net of issuance costs	—		—	11,822		—		78		—		78
Issuance of common stock for consulting services	—		—	37,593		—		251		—		251
Stock-based compensation	—		—	—		—		656		—		656
Balance, June 30, 2024	47	$	—	1,469,540	$	14	$	113,550	$	(101,449)	$	12,115

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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 (1)	Value (1)		Capital (1)		Deficit		Precipio, Inc.		Joint Venture		Total
Balance, April 1, 2023	47	$	—	1,168,204	$	11	$	109,476	$	(95,327)	$	14,160	$	65	$	14,225
Net loss	—		—	—		—		—		(2,293)		(2,293)		—		(2,293)
Issuance of common stock in connection with at the market offering, net of issuance costs	—		—	3,661		—		47		—		47		—		47
Issuance of common stock in connection with purchase agreements	—		—	206,250		3		1,757		—		1,760		—		1,760
Stock-based compensation	—		—	—		—		352		—		352		—		352
Balance, June 30, 2023	47	$	—	1,378,115	$	14	$	111,632	$	(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 (1)	Value (1)		Capital (1)		Deficit		Precipio, Inc.		Joint Venture		Total
Balance, January 1, 2023	47	$	—	1,141,013	$	11	$	108,588	$	(92,297)	$	16,302	$	65	$	16,367
Net loss	—		—	—		—		—		(5,323)		(5,323)		—		(5,323)
Issuance of common stock in connection with purchase agreements	—		—	206,250		3		1,757		—		1,760		—		1,760
Issuance of common stock in connection with at the market offering, net of issuance costs	—		—	30,852		—		485		—		485		—		485
Stock-based compensation	—		—	—		—		802		—		802		—		802
Balance, June 30, 2023	47	$	—	1,378,115	$	14	$	111,632	$	(97,620)	$	14,026	$	65	$	14,091

(1) The common stock and additional paid-in capital for all periods presented reflect the one-for-twenty reverse stock split, which was effected on September 21, 2023

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,
	2024		2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(3,299)	$	(5,323)

Adjustments to reconcile net loss to net cash flows used in operating activities:
Depreciation and amortization		601		621
Amortization of operating lease right-of-use asset		114		99
Amortization of finance lease right-of-use asset		35		43
Amortization of deferred financing costs, debt discounts and debt premiums		1		1
Stock-based compensation		656		802
Value of stock issued in payment of services		251		—
Provision for credit losses		112		124
Changes in operating assets and liabilities:
Accounts receivable		82		28
Inventories		(269)		171
Other assets		188		192
Accounts payable		233		353
Operating lease liabilities		(116)		(97)
Deferred revenue		150		(102)
Accrued expenses		1,094		311
Net cash used in operating activities		(167)		(2,777)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(70)		(54)
Net cash used in investing activities		(70)		(54)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on finance lease obligations		(35)		(44)
Deposits on finance lease right-of-use assets		(28)		—
Issuance of common stock, net of issuance costs		78		2,245
Proceeds from debt		250		—
Principal payments on long-term debt		(251)		(242)
Net cash flows provided by financing activities		14		1,959
NET CHANGE IN CASH		(223)		(872)
CASH AT BEGINNING OF PERIOD		1,502		3,445
CASH AT END OF PERIOD	$	1,279	$	2,573

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,
	2024		2023
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest	$	24	$	18

SUPPLEMENTAL DISCLOSURE OF CONSULTING SERVICES OR ANY OTHER NON-CASH COMMON STOCK RELATED ACTIVITY
Purchases of equipment financed through accounts payable		—		7
Operating lease right-of-use assets obtained in exchange for operating lease obligations		—		58
Finance lease right-of-use assets obtained in exchange for finance lease obligations		205		—

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, 2024 and 2023

1. BUSINESS DESCRIPTION

Business Description.

Precipio, Inc., and its subsidiaries, (collectively, “we”, “us”, “our”, the “Company” or “Precipio”) is a healthcare biotechnology company focused on cancer diagnostics. Our mission is to address the pervasive problem of cancer misdiagnoses by developing solutions in the form of diagnostic products and services.

Our products and services aim to deliver higher accuracy, improved laboratory workflow, and ultimately better patient outcomes, which reduce healthcare expenses. We develop innovative technologies in our laboratory where we design, test, validate, and use these products clinically. We believe these technologies improve diagnostic outcomes across various diseases within the hematologic field. We then commercialize these technologies as proprietary products that serve the global laboratory community in furtherance of our mission to eliminate or greatly reduce the prevalence of misdiagnosis. To deliver our strategy, we have structured our organization to develop diagnostic products, including our laboratory and research and development (“R&D”) facilities located in New Haven, Connecticut and Omaha, Nebraska, respectively, which house teams that collaborate on the development of new products and services. We operate clinical laboratory improvement amendment (“CLIA”) laboratories in both New Haven, Connecticut and Omaha, Nebraska where we provide 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.

The development of laboratory products involves a qualified facility; highly skilled laboratory staff; and access to viable patient specimens to conduct development and testing. Our CLIA laboratory in New Haven, which is operated by our pathology services division, encapsulates these components, and also generates revenue for us which covers costs associated with operating this laboratory. This structure of utilizing our clinical lab to obtain samples and utilize the equipment and staffing to develop, test and validate our products, significantly reduces the development costs and timeline for our products. This also enables us to accelerate the time to market of new product development and launch.

Furthermore, as a clinical laboratory, we are always the first user of every product we develop, which allows us to optimize important laboratory functions such as workflow, inventory management, regulatory and billing issues. As a vendor, this places us as a reputable user of our own products, and we believe gains us significant credibility with existing and prospective customers. Furthermore, because we use our products as part of our day-to-day operations, we are able to deliver a high level of hands-on, experienced support to customers, improving their experience with our products.

Our Products Division commercial team generates direct sales and works with our key distributors. Global healthcare distributors, such as ThermoFisher, McKesson, and Cardinal Health, have partnered with us to form the backbone of our go-to-market strategy and enable us to access laboratories around the country that can benefit from using our diagnostic products.

Our operating structure promotes the harnessing of our proprietary technology and genetic diagnostic expertise to bring to market our robust pipeline of innovative solutions designed to address the root causes of misdiagnoses.

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 and do not include any adjustments that might result should the Company be unable to continue as a going concern. 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, 2024, the Company had a net loss of $3.3 million and net cash used in operating activities of $0.2 million. As of June 30,

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2024, the Company had an accumulated deficit of $101.4 million and a working capital deficit of $1.2 million. The Company’s ability to continue as a going concern over the next twelve months from the date of issuance of these condensed consolidated financial statements in this Quarterly Report on Form 10-Q is dependent upon a combination of achieving its business plan, including generating additional revenue and avoiding potential business disruption due to the macroeconomic environment and geopolitical instability, 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:

●

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 U.S. Securities and Exchange Commission (“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. On April 8, 2024, we filed a prospectus supplement to our prospectus dated April 25, 2023 registering the offer and sale of up to $1,061,478 of shares of our common stock (the “April 2024 Prospectus Supplement”). As of the date the condensed consolidated financial statements were issued, the Company has approximately $3.7 million available for future sales pursuant to the 2023 Registration Statement, which includes approximately $1.0 million of remaining availability pursuant to the April 2024 Prospectus Supplement. See Note 7 Stockholders’ Equity, AGP 2023 Sales Agreement, 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.

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 a 1-for-20 reverse stock split which was effected on September 21, 2023, 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. As of June 30, 2024 and for the three and six months ended June 30, 2024 and 2023, the condensed consolidated financial statements 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, 2023 contained in our Annual Report on Form 10-K, filed with the SEC on March 29, 2024. The results of operations for the interim periods presented are not necessarily indicative of the results for fiscal year 2024.

Recently Adopted Accounting Pronouncements.

In June 2022, the Financial Accounting Standards Board (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 Company adopted this guidance on January 1, 2024. The adoption of this standard was not material to our condensed consolidated financial statements.

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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 earnings per share (“EPS”) guidance for both Subtopics. The Company adopted this guidance on January 1, 2024. The adoption of this standard was not material to our condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis, primarily through enhanced disclosures of significant segment expenses. The guidance will be effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 and requires retrospective application to all periods presented upon adoption, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its condensed consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09—Income Taxes (Topic 740)—Improvements to Income Tax Disclosures (“ASU 2023-09”) which is intended to enhance the transparency and decision usefulness of income tax disclosures. ASU 2023-09 requires additional disaggregation of the reconciliation between the statutory and effective tax rate for an entity and of income taxes paid, both of which are disclosures required by current GAAP. The amendments improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. The amendments in ASU 2023-09 apply to all entities that are subject to Topic 740, Income Taxes. For public business entities, the amendments in ASU 2023-09 are effective for annual periods beginning after December 15, 2024. Early adoption is permitted. ASU 2023-09 is effective for the Company beginning January 1, 2025. Adoption of ASU 2023-09 is expected to enhance the usefulness of income tax disclosures and is not expected to have a material impact on the Company’s financial position, results of operations or cash flow.

Loss Per Share.

Basic loss per share is calculated based on the weighted-average number of common shares (including pre-funded warrants) 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 754,344 and 709,159 shares of our common stock have been excluded from the computation of diluted loss per share at June 30, 2024 and 2023, 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,
	2024	2023
Stock options	304,025	231,802
Warrants	444,444	471,482
Preferred stock	5,875	5,875
Total	754,344	709,159

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3. LONG-TERM DEBT

Long-term debt consists of the following:


	Dollars in Thousands
	June 30, 2024		December 31, 2023
Connecticut Department of Economic and Community Development (DECD)	$	131	$	146
DECD debt issuance costs		(11)		(12)
Financed insurance loan		—		207
Business loan agreement		221		—
Total long-term debt		341		341
Current portion of long-term debt		(249)		(235)
Long-term debt, net of current maturities	$	92	$	106

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, 2024 and 2023, respectively and $1 thousand for the six months ended June 30, 2024 and 2023, respectively.

Financed Insurance Loan.

The Company finances certain of its insurance premiums (the “Financed Insurance Loans”). In July 2023, the Company financed $0.4 million with a 9.99% interest rate and made payments on a monthly basis through June 2024. As of June 30, 2024 and December 31, 2023, 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 sheets. A corresponding prepaid asset was included in other current assets.

Business Loan Agreement.

On May 1, 2024, the Company entered into a Business Loan and Security Agreement (the “Loan Agreement”) with Altbanq Lending LLC, pursuant to which the Company obtained a loan in the principal amount of $250,000 (the “Secured Loan”). According to the Loan Agreement, the Company granted the lender a continuing security interest in certain collateral (as defined in the Loan Agreement). Furthermore, the Company’s Chief Executive Officer provided a personal guaranty for the Secured Loan. The Secured Loan has a term of one year and an interest rate of 20%, such that pursuant to the Loan Agreement, the Company is obligated to pay the Lender 52 payments of $5,769 on a weekly basis and the total sum of the Secured Loan and interest (not including any fees) shall equal a total repayment amount of $300,000. If the Company defaults on payments then a default fee of $15,000 shall be payable to the lender.

The Company has the right, at its discretion, to request the lender to loan an additional amount of up to $250,000 on the same terms and conditions as set forth in the Loan Agreement, provided that there has been no material change in the Company’s finances.

As of June 30, 2024 and December 31, 2023, the outstanding balance of $0.2 million and zero, respectively, under the Loan Agreement, was included in current maturities of long-term debt in the Company’s condensed consolidated balance sheets.

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4. ACCRUED EXPENSES

Accrued expenses at June 30, 2024 and December 31, 2023 are as follows:


(dollars in thousands)	June 30, 2024		December 31, 2023
Accrued expenses	$	668	$	764
Accrued compensation		993		754
Accrued franchise, property and sales and use taxes		181		287
CHC temporary funding assistance		1,057		—
Accrued interest		19		19
	$	2,918	$	1,824

The Company uses Change Healthcare (“CHC”), a healthcare technology company owned by UnitedHealth Group, to process some of its patient claims billings. In February 2024, CHC announced that it had experienced a cyberattack and as a result had to temporarily shut down some of its information technology systems. This system shut down caused delays in billing and reimbursement processes to CHC’s customers and, as a result, CHC established a Temporary Funding Assistance Program to help bridge the gap in short-term cash flow needs for customers affected by the disruption of its services due to the cyberattack. Funding distributed through this program is interest free and has no other fees or costs associated with it. As of June 30, 2024, CHC’s systems have yet to be fully restored. After CHC’s systems resume 100% of standard operations, any funds provided through the program will have to be repaid to CHC at a future date to be mutually agreed to by CHC and the Company.

During the six months ended June 30, 2024, the Company received approximately $1.1 million through CHC’s Temporary Assistance Program.

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 $0.9 million at June 30, 2024.

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, 2024 and December 31, 2023.

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.

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Government activity has increased with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by healthcare providers.

Violations of these laws and regulations could result in expulsion from government healthcare programs together with the imposition of significant fines and penalties, as well as significant repayments for patient services previously billed. Management believes that the Company is in compliance with fraud and abuse regulations, as well as other applicable government laws and regulations. While no material regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation, as well as regulatory actions unknown or unasserted at this time.

6. LEASES

The Company leases administrative facilities and laboratory equipment through operating lease agreements. In addition, we rent various equipment used in our diagnostic lab and in our administrative offices through finance lease arrangements. Our operating leases include both lease (e.g., fixed payments including rent) and non-lease components (e.g., common area or other maintenance costs). The facility leases include 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, 2024 and 2023, 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, 2024 and December 31, 2023, 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, 2024		December 31, 2023
Assets:
Operating lease right-of-use assets, net	$	498	$	612
Finance lease right-of-use assets, net (1)		372		174
Total lease assets	$	870	$	786

Liabilities:
Current:
Current maturities of operating lease liabilities	$	208	$	218
Current maturities of finance lease liabilities		105		132
Noncurrent:
Operating lease liabilities, less current maturities		301		407
Finance lease liabilities, less current maturities		215		18
Total lease liabilities	$	829	$	775

(1)

As of June 30, 2024 and December 31, 2023, finance lease right-of-use assets included zero, respectively, of assets related to finance leases associated with the HSRR program.

As of June 30, 2024, 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,
		2024		2024		2024
2024 (remaining)	$	120	$	74	$	194
2025		224		134		358
2026		214		95		309
2027		—		69		69
2028		—		29		29
Total lease obligations		558		401		959
Less: Amount representing interest		(49)		(81)		(130)
Present value of net minimum lease obligations		509		320		829
Less, current portion		(208)		(105)		(313)
Long term portion	$	301	$	215	$	516

Other information as of June 30, 2024 and December 31, 2023 is as follows:


	June 30,	December 31,
	2024	2023
Weighted-average remaining lease term (years):
Operating leases	2.4	2.8
Finance leases	3.0	2.0
Weighted-average discount rate:
Operating leases	8.00%	8.00%
Finance leases	13.62%

Precipio, Inc. [PRPO] Filings
10-Q	[2024-08-13]
10-Q	[2024-05-14]
10-K	[2024-03-29]
10-Q	[2023-11-13]
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]