美國
證券交易委員會
華盛頓特區20549
表格
（標記一）
根據1934年證券交易法第13或15(d)條，本季度報告 | |
截至季度結束日期的財務報告 | |
或者 | |
根據1934年證券交易法第13或15（d)條的轉型報告 | |
過渡期從_____到_____ |
委託文件編號：001-39866
(根據其章程規定的註冊人準確名稱)
（國家或其他管轄區的 | （IRS僱主 |
公司成立或組織） | 唯一識別號碼） |
，（主要行政辦公地址） | (郵政編碼) |
(
(註冊人電話號碼，包括區號)
在法案第12(b)條的規定下注冊的證券： | ||
每一類的名稱 | 交易標誌 | 在其上註冊的交易所的名稱 |
The | ||
請確認是否按照證券交易法案第13或15（d）節的要求文件了在過去12個月內（或該註冊人需要提交此類文件的更短期間內）的所有報告，並且在過去90天內一直受到這些文件提交的要求。
請勾選表示註冊公司是否在過去12個月（或更短的時間內）根據S-t規則405條的要求電子提交了所有需要提交的互動數據文件。
指示 除 檢查標記註冊者是否爲大型快速文檔提交者，快速文檔提交者，非快速文檔提交者，較小報告公司，或新興增長公司。請參閱《交易所法案》第120億2條中「大型快速文檔提交者」，「快速文檔提交者」，「較小報告公司」和「新興增長公司」的定義。
大型加速文件申報人 | ◻ | 加速文件申報人 | ◻ |
☒ | 更小的報告公司 | ||
新興成長公司 |
如果是一家新興成長型企業，請打勾表示註冊機構選擇不使用根據《交易所法》第13(a)條規定提供的任何新的或修訂的財務會計準則的延長過渡期來符合。 ◻
請用複選標記指示註冊人是否爲殼公司（如交易所法規120億.2中定義）。 是
截至2024年11月3日，普通股的發行股份數爲
第1部分 財務信息
項目1 簡明合併財務報表
PRECIPIO，INC.和附屬公司
簡明合併資產負債表
(千美元，股份數據除外)
(未經審計) | ||||||
| 2024年9月30日 |
| 2023年12月31日 | |||
資產 | ||||||
流動資產： | ||||||
現金 | $ | | $ | | ||
應收賬款（減去2024年6月30日和2023年12月31日各自的信用損失準備） |
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存貨 |
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其他資產 |
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總流動資產 |
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固定資產淨額 |
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其他資產: | ||||||
融資租賃的使用權資產，淨額。 | | | ||||
經營租賃使用權資產，淨值 | | | ||||
無形資產，淨額 |
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其他 |
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資產總額 | $ | | $ | | ||
負債和股東權益 | ||||||
流動負債： | ||||||
長期債務的到期金額，減去發行債務成本 | $ | | $ | | ||
融資租賃負債的流動部分 |
| | | |||
經營租賃負債的到期付款 |
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應付賬款 |
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應計費用 |
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遞延收入 |
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流動負債合計 |
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長期負債： | ||||||
減去當前到期日債務和債券發行費用的長期債務 |
| | | |||
攤薄每股收益（A類和B類）： |
| | | |||
經營租賃負債，扣除流動部分 |
| | | |||
負債合計 |
| | | |||
承諾和 contingencies (注 5) | ||||||
6.40 | ||||||
優先股票$ |
| |||||
普通股，$ |
| | | |||
資本公積 |
| | | |||
累積赤字 |
| ( | ( | |||
股東權益總額 | | | ||||
負債和股東權益總額 | $ | | $ | | ||
請參閱未經審計的合併基本財務報表註釋。
3
PRECIPIO，INC.和附屬公司
簡明合併利潤表
(金額以千元爲單位，除每股數據外)
(未經審計)
截至9月30日，三個月的結束 | 截至9月30日的前九個月 | |||||||||||
| 2024 |
| 2023 | 2024 |
| 2023 | ||||||
銷售： |
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服務收入，淨額 | $ | | $ | | $ | | $ | | ||||
產品營業收入 |
| |
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減去合同減免和調整後的收入 |
| |
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信用損失準備金調整 |
| ( |
| ( |
| ( |
| ( | ||||
淨銷售額 |
| |
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銷售成本： |
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服務成本 |
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產品營業成本 |
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銷售成本合計 |
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毛利潤 |
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營業費用: |
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營業費用 |
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營業虧損 |
| ( |
| ( |
| ( |
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其他費用: |
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利息費用，淨額 |
| ( |
| ( |
| ( |
| ( | ||||
稅前虧損 |
| ( |
| ( |
| ( |
| ( | ||||
所得稅費用 |
| – |
| – |
| – |
| — | ||||
淨損失 | $ | ( | $ | ( | $ | ( | $ | ( | ||||
每股基本和稀釋損失 | $ | ( | $ | ( | $ | ( | $ | ( | ||||
普通股基本和攤薄加權平均每股流通量 |
| |
| |
| |
| | ||||
請參閱未經審計的合併基本財務報表註釋。
4
PRECIPIO，INC.和附屬公司
股東權益的簡明合併報表
（以千美元計）
(未經審計)
截至2024年9月30日三個月 | |||||||||||||||||||||||||
優先股 | 普通股 | 額外的 | 非控制權益 | ||||||||||||||||||||||
未償還金額 | 股票名義價值 |
| 未償還金額 |
| Par | 實收資本 | 累積的 | 對...的興趣 | |||||||||||||||||
| 股份 |
| 價值 |
| 股份 |
| 價值 |
| 資本 |
| $ |
| 總計 |
| 合資企業 |
| 總計 | ||||||||
2024年7月1日餘額 |
| | $ | — |
| | $ | | $ | | $ | ( | $ | | $ | — | $ | | |||||||
淨損失 | — | — | — | — | — | ( | ( | — | ( | ||||||||||||||||
發行普通股以換取諮詢服務 | — | — | | | | — | | — | | ||||||||||||||||
股票補償 | — |
| — |
| — |
| — |
| |
| — |
| |
| — |
| | ||||||||
2024年9月30日餘額 | | $ | — | | $ | | $ | | $ | ( | $ | | $ | — | $ | | |||||||||
2024年9月30日結束的九個月 | |||||||||||||||||||||||||
優先股 | 普通股 | 額外的 | 非控制權益 | ||||||||||||||||||||||
未償還金額 | Par |
| 未償還金額 |
| Par | 實收資本 | 累積的 | 對...的興趣 | |||||||||||||||||
股份 |
| 價值 |
| 股份 |
| 價值 |
| 資本 |
| $ |
| 總計 |
| 合資企業 |
| 總計 | |||||||||
2024年1月1日餘額 | | $ | — |
| | $ | | $ | | $ | ( | $ | | $ | — | $ | | ||||||||
淨損失 |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( |
| — |
| ( | |||||||
與市場發行相關的普通股發行，扣除發行成本後淨額 | — | — | | — | | — | | — | | ||||||||||||||||
發行普通股以換取諮詢服務 | — | — | | | | — | | — | | ||||||||||||||||
股票補償 |
| — |
| — |
| — |
| — |
| |
| — |
| |
| — |
| | |||||||
2024年9月30日餘額 |
| | $ | — | | $ | | $ | | $ | ( | $ | | $ | — | $ | | ||||||||
請參見未經審計的簡明合併財務報表附註
5
PRECIPIO，INC.和附屬公司
股東權益的簡明合併報表
（以千美元計）
(未經審計)
截至2023年9月30日三個月的時間 | |||||||||||||||||||||||||
優先股 | 普通股 | 額外的 | 非控制權益 | ||||||||||||||||||||||
未償還金額 | Par |
| 未償還金額 |
| Par | 實收資本 | 累積的 | 總計 | 對...的興趣 | ||||||||||||||||
| 股份 |
| 價值 |
| 股票 （1） |
| 價值 (1) |
| 資本（1） |
| $ |
| Precipio, 公司。 |
| 合資企業 |
| 總計 | ||||||||
2023年7月1日餘額 | | $ | — | | $ | | $ | | $ | ( | $ | | $ | | $ | | |||||||||
淨損失 |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( |
| — |
| ( | |||||||
與限制性股票獎勵相關的普通股發行 | — | — | | — | | — | | — | | ||||||||||||||||
與股票逆向拆股相結合支付零頭普通股 | — | — | ( | — | — | — | — | — | — | ||||||||||||||||
股票補償 |
| — |
| — |
| — |
| — |
| |
| — |
| |
| — |
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2023年9月30日餘額 |
| | $ | — |
| | $ | | $ | | $ | ( | $ | | $ | | $ | | |||||||
截止2023年9月30日止九個月 | |||||||||||||||||||||||||
優先股 | 普通股 | 額外的 | 非控制權益 | ||||||||||||||||||||||
未償還金額 | Par |
| 未償還金額 |
| Par | 實收資本 | 累積的 | 總計 | 對...的興趣 | ||||||||||||||||
股份 |
| 價值 |
| 股份（1） |
| 價值（1） |
| 資本（1） |
| $ |
| Precipio, 公司。 |
| 合資企業 |
| 總計 | |||||||||
2023年1月1日餘額 | | $ | — | | $ | | $ | | $ | ( | $ | | $ | | $ | | |||||||||
淨損失 |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( |
| — |
| ( | |||||||
根據購買協議發行普通股 | — | — | | | | — | | — | | ||||||||||||||||
與市場發行相關的普通股發行，扣除發行成本後淨額 | — | — | | — | | — | | — | | ||||||||||||||||
發行普通股與受限制股獎勵相關 | — | — | | — | | — | | — | | ||||||||||||||||
在逆向股票拆分的同時支付零散普通股份 | — | — | ( | — | — | — | — | — | — | ||||||||||||||||
股票補償 |
| — |
| — |
| — |
| — |
| |
| — |
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| — |
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2023年9月30日餘額 |
| | $ | — |
| | $ | | $ | | $ | ( | $ | | $ | | $ | | |||||||
(1) 所有期間的普通股和額外實收資本反映了於2023年9月21日實施的一對一股票合併 逆向股票拆分，即於2023年9月21日生效
請參閱未經審計的合併基本財務報表註釋。
6
PRECIPIO，INC.和附屬公司
現金流量表簡明綜合報表
（以千美元計）
(未經審計)
截至9月30日的前九個月 | ||||||
| 2024 |
| 2023 | |||
經營活動產生的現金流量： | ||||||
淨損失 | $ | ( | $ | ( | ||
調整淨虧損爲經營活動產生的現金流量而作出的調整： |
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折舊和攤銷 |
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經營租賃權資產的攤銷 | | | ||||
財務租賃權益資產的攤銷 | | | ||||
攤銷遞延融資費用、債務折讓和債務溢價 |
| |
| | ||
股票補償 |
| |
| | ||
以股票形式支付的服務價值 |
| |
| — | ||
撥備 |
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經營性資產和負債變動: |
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應收賬款 |
| |
| ( | ||
存貨 |
| ( |
| | ||
其他 |
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應付賬款 |
| |
| | ||
經營租賃負債 | ( | ( | ||||
遞延收入 | | ( | ||||
應計費用 |
| |
| | ||
經營活動使用的淨現金流量 |
| ( |
| ( | ||
投資活動產生的現金流量： |
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|
| |||
購置固定資產等資產支出 |
| ( |
| ( | ||
投資活動產生的淨現金流出 |
| ( |
| ( | ||
籌資活動產生的現金流量： |
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| ||
金融租賃義務的本金支付 |
| ( |
| ( | ||
融資租賃權益資產上的存款 | ( | — | ||||
普通股股份發行淨額（扣除發行成本） | | | ||||
債務收益 |
| |
| — | ||
償還長期債務本金 |
| ( |
| ( | ||
籌資活動提供的淨現金流出（入） |
| ( |
| | ||
現金淨變動額 |
| ( |
| ( | ||
期初現金 |
| |
| | ||
期末現金 | $ | | $ | | ||
請參閱未經審計的合併基本財務報表註釋。
7
8
PRECIPIO，INC.和附屬公司
未經審計的財務報表註釋
2024年和2023年9月30日止三個和九個月
1. 業務描述
業務描述。
Precipio，Inc.及其子公司（統稱爲「我們」，「我們」，「我們公司」或「Precipio」）是一家專注於癌症診斷的醫療生物技術公司。我們的使命是通過開發診斷產品和服務的形式來解決癌症誤診的普遍問題。
我們的產品和服務旨在提供更高的準確性，改善實驗室工作流程，最終帶來更好的患者結果，有助於降低醫療支出。我們在實驗室中開發創新技術，並對這些產品進行設計、測試、驗證，然後在臨床上使用。我們相信這些技術可以改善血液學領域內不同疾病的診斷結果。我們將這些技術作爲專有產品進行商業化，服務於全球實驗室社區，以推動我們消除或大大減少誤診的使命。爲了實現我們的戰略，我們構建了一個致力於開發診斷產品的組織架構，其中包括位於康涅狄格州紐黑文和內布拉斯加州奧馬哈的實驗室以及研發設施，這些設施設有團隊，共同開發新產品和服務。我們在康涅狄格州紐黑文和內布拉斯加州奧馬哈都經營臨床實驗室改進修正法案（CLIA）實驗室，在這些實驗室中，我們向全國許多州的基本診斷腫瘤科醫生提供必要的血液癌症診斷。爲了實現減少誤診的戰略目標，我們在很大程度上依賴於我們的CLIA實驗室來支持我們開發的產品的臨床環境中的R&D測試。
實驗室產品的開發涉及一個合格的設施；高技能的實驗室工作人員；以及獲取有效患者樣本來進行開發和測試。我們在紐黑文經營的CLIA實驗室由我們的病理服務部門運營，涵蓋了這些組成部分，併爲我們帶來收入，覆蓋了運營該實驗室相關成本。利用我們的臨床實驗室以獲取樣本，並利用設備和人員來開發、測試和驗證產品，顯著降低了產品的開發成本和時間。這也使我們能夠加速新產品開發和推出的市場時間。
此外，作爲臨床實驗室，我們總是每一款產品的第一個用戶，這使我們能夠優化重要的實驗室功能，如工作流程、庫存管理、監管和賬單問題。作爲供應商，這使我們成爲自己產品的可靠用戶，並且我們相信這讓我們在現有和潛在客戶中贏得了重要的信譽。此外，由於我們在日常運營中使用我們的產品，我們能夠爲客戶提供高水準的親身經驗支持，提升他們使用我們產品的體驗。
我們的產品部商業團隊創造直接銷售業績，並與關鍵分銷商合作。如賽默飛世爾、麥克森和卡地納健康等全球醫療分銷商與我們合作，構建我們的市場推廣策略的基礎，並使我們能夠進入全國各地的實驗室，這些實驗室可以從使用我們的診斷產品中受益。
我們的營運結構促進了我們的專有技術和基因診斷專業知識的利用，以推出我們強大的創新解決方案管道，旨在解決誤診的根本原因。
持續經營。
綜合簡明的財務報表是根據美國公認會計原則（「GAAP」）爲持續經營編制的，假定公司將會在日常業務中實現其資產並清償其負債，並且不包括任何調整，如果公司無法繼續作爲持續經營，可能會導致的結果。公司已經遭受了重大經營虧損，並已連續幾年在經營活動中使用現金。截至2024年9月30日的九個月，公司淨虧損爲$
9
截至2024年9月30日，公司累計赤字爲$
爲了履行公司當前和未來的義務，公司已經採取以下措施資本化業務:
| ● | 於2023年4月14日，公司與AGP簽訂了銷售協議，根據該協議，公司可以發行並出售最多 $ |
儘管上述情況，但對於公司未來十二個月能否繼續作爲持續存在的能力仍存在重大疑慮，這是在這些簡明的合併財務報表發佈之日起十二個月內的情況。無法保證公司能夠成功實現上述總結的倡議，以在從本季度報告表格10-Q發佈之日起的未來十二個月內繼續作爲持續存在的機構。
2.重要會計政策摘要
報表呈現的基礎。
附表的簡明合併財務報表符合GAAP的規定。根據GAAP的要求，在2023年9月21日實施的1比-逆向股票拆分，除非另有說明，公司已調整這些附註和簡明合併財務報表中列出的所有股份金額、每股數據、股價、行權價和轉換率。 自2023年9月21日實施的1比-逆向股票拆分起，除非另有說明，公司已調整這些附註和簡明合併財務報表中列出的所有股份金額、每股數據、股價、行權價和轉換率。自2023年9月21日實施的1比-逆向股票拆分起，除非另有說明，公司已調整這些附註和簡明合併財務報表中列出的所有股份金額、每股數據、股價、行權價和轉換率。 截至2024年9月30日以及截至2024年9月30日和2023年9月30日的三個和九個月，這些簡明合併財務報表未經審計，反映了所有必要的調整（僅包括正常的循環調整），以公平呈現中間期間的財務狀況和業務結果。這些未經審計的簡明合併財務報表和附註應與截至2023年12月31日的年度報告中SEC於2024年3月29日提交的10-k表格中的審計財務報表和相關附註共同閱讀。所呈現的中間期間運營結果未必是2024財政年度的結果。
最近實施的會計聲明。
2022年6月，財務會計準則委員會（「FASB」）發佈了ASU 2022-03，公允價值衡量（主題820）（「ASU 2022-03」）。ASU 2022-03中的修訂澄清了對股權證券銷售的合同限制不被視爲股權證券的計量單位的一部分，因此，在衡量公允價值時不予考慮。修訂還澄清，實體不能作爲單獨的計量單位承認和衡量合同銷售限制。此更新中的修訂還要求額外披露
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針對受合同出售限制的股票。公司於2024年1月1日採納了這項指導。 採用該準則對我們的簡明綜合財務報表並無實質影響。
2020年8月，FASB發佈了ASU 2020-06"債務-具有轉換和其他期權的債務（子專題470-20）和衍生工具和對沖-實體自有權益合同（子專題815-40）：會計處理可轉換工具和實體自有權益合同。” 這項ASU修訂了可轉換工具指南和用於實體自有股本中合同的衍生品範圍例外，並改進和修改了相關每股收益（EPS）的指導，兩個專題。公司於2024年1月1日採納了這項指導。 採用該標準對我們的簡明綜合財務報表並無實質影響。
尚未採納的最新會計聲明。
2023年11月，FASb發佈了ASU 2023-07，分部報告（主題280）：改進報告分部披露，要求年度和中期基礎上披露增量分部信息，主要通過增強對重要分部費用的披露。該指南將於2023年12月15日後開始的財政年度生效，並於2024年12月15日後開始的財政年度內的中期生效，並要求在採用時對所呈現的所有期間應進行追溯應用，允許提前採用。公司目前正在評估採用此指南將對其簡明合併財務報表和相關披露產生的影響。
2023年12月，FASb發佈了ASU 2023-09——所得稅（主題740）——改進所得稅披露（「ASU 2023-09」），旨在增強所得稅披露的透明度和決策有用性。ASU 2023-09要求在實體的法定稅率和有效稅率之間的調節以及支付的所得稅之間進行進一步細分，這兩者是當前GAAP要求的披露。修訂增強了所得稅披露的透明度，要求(1)在速度調和中使用一致的類別和更大的細分信息以及(2)按司法管轄區細分支付的所得稅款。ASU 2023-09的修訂適用於所有適用於主題740《所得稅》的實體。對於上市公司， ASU 2023-09的修訂於2024年12月15日後開始的年度期間生效。允許提前採用。ASU 2023-09於2025年1月1日對公司生效。預計採用ASU 2023-09將增強所得稅披露的有用性，不會對公司的財務狀況、經營業績或現金流產生實質性影響。
每股收益。
基本每股虧損是根據每個期間的權數平均普通股（包括預資助證券）計算的。稀釋每股虧損包括可通過行使未行使的股票期權、認股權證或轉股權獲得的股份，其行使或轉股價格低於我公司普通股的市價。由於預資助權證的行使價格微不足道，公司的普通股基礎和稀釋每股虧損的計算中包括公司的普通股權證。期權，warrants和轉換權與
以下表總結了未包括在攤薄每股淨虧損計算中的未結算證券：
2021年9月30日 | ||||
| 2024 |
| 2023 | |
股票期權 |
| |
| |
權證 |
| |
| |
優先股 |
| |
| |
總計 |
| |
| |
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3. 開多期債務
長期負債包括以下內容：
千美元 | ||||||
| 2024年9月30日 |
| 2023年12月31日 | |||
康涅狄格州經濟和社區發展部（DECD） | $ | | $ | | ||
DECD債務發行成本 |
| ( |
| ( | ||
融資保險貸款 |
| |
| | ||
業務貸款協議 | | — | ||||
所有長期債務 |
| |
| | ||
開多次數 |
| ( |
| ( | ||
長期負債淨額 | $ | | $ | | ||
經濟和社區發展部。
2018年1月8日，公司與康涅狄格州經濟和社區發展部(DECD)簽訂協議，公司獲得了一筆額度爲$ 的貸款
債務發行成本的攤銷分別爲2024年和2023年截至9月30日的三個月少於$
融資保險貸款。
公司財務部分保險費用（「融資保險貸款」）。在2024年7月，公司用$
2024年5月1日，公司與Altbanq Lending LLC訂立了一份業務貸款和安防-半導體協議（「貸款協議」），根據該協議，公司獲得了一筆
美元（「擔保貸款」）。根據貸款協議，公司向貸款人授予了一項與抵押品有關的持續安全利益
The Company has the right, at its discretion, to request the lender to loan an additional amount of up to $
截至2024年9月30日和2023年12月31日，貸款協議下的未償餘額分別納入公司簡明合併資產負債表中的長期債務到期償還款項。
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4應計費用
2024年9月30日和2023年12月31日的應計費用如下：
（以千美元爲單位） |
| 2024年9月30日 |
| 2023年12月31日 | ||
應計費用 | $ | | $ | | ||
應計的薪資 |
| |
| | ||
應計的特許經營稅、財產稅和銷售和使用稅 | | | ||||
CHC臨時資金援助 | | — | ||||
應計利息 |
| |
| | ||
$ | | $ | | |||
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 September 30, 2024, CHC’s systems have yet to be fully restored.
During the nine months ended September 30, 2024, the Company received approximately $
5. COMMITMENTS AND CONTINGENCIES
該公司涉及與其業務有關的訴訟事項，這些事項是與其業務相關的。此外，該公司拖欠了某些供應商的應付賬款，這些供應商已採取或威脅要採取法律行動以收回這些未付款項。有關這些事項的討論請參見下文。
購買承諾
該公司已與供應商簽訂了關於試劑的採購承諾。這些協議始於2011年，到2025年結束。公司和供應商將每年調整金額。這些和其他採購協議下的未來最低採購承諾約爲 $
訴訟
CPA Global爲我們提供某些專利管理服務。2017年2月6日，CPA Global聲稱我們應支付約
法律和監管環境
醫療保健行業受聯邦、州和地方政府的許多法律和法規約束。這些法律和法規包括但不限於許可、認證、政府醫療保健
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計劃參與要求、患者服務報銷以及醫療保險和醫療補助的欺詐和濫用。政府在調查和指控醫療保健提供者可能違反欺詐和濫用法規和規章方面的活動有所增加。
違反這些法律法規可能導致政府醫療保健計劃被開除，並處以巨額罰款和罰款，並大量償還先前開具賬單的患者服務。管理層認爲，公司遵守了欺詐和濫用職權法規以及其他適用的政府法律法規。儘管尚未進行任何重大監管調查，但此類法律和法規的遵守情況可能會受到政府的未來審查和解釋，以及目前未知或未經證實的監管行動。
6。租賃
公司通過經營租賃協議租賃行政設施和實驗室設備。此外，我們通過融資租賃安排租用診斷實驗室和行政辦公室使用的各種設備。我們的經營租賃包括租賃（例如，包括租金在內的固定付款）和非租賃部分（例如公共區域或其他維護成本）。設施租賃包括
經營租賃導致資產負債表上確認ROU資產和租賃負債。ROU 資產代表我們在租賃期限內使用租賃資產的權利，租賃負債代表我們支付租賃款項的義務。經營租賃ROU資產和負債在開始之日根據租賃期內租賃付款的現值進行確認。租賃費用在租賃期內以直線方式確認。初始期限爲12個月或更短的租賃不記錄在資產負債表上。我們簽訂的初始租期爲12個月或更短的主要租賃是設備租賃。
該公司還承認與其HemeScreen試劑租賃（「HSRR」）計劃相關的融資租賃中的ROU資產。對於HSRR計劃中的某些客戶，公司租賃診斷測試設備，然後將設備轉租給客戶。融資租賃ROU資產和融資租賃負債在租賃開始之日確認，在轉租開始之日，融資租賃ROU資產被取消確認，並在簡明合併運營報表中記錄爲銷售成本。曾經有
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我們的經營和融資租賃的資產負債表呈現如下：
（以千美元爲單位） | ||||||
綜合合併資產負債表上經營租賃的資產、使用權資產淨額分類如下： | 2024年9月30日 | 2023年12月31日 | ||||
資產： | ||||||
經營租賃權使用資產淨額 | $ | | $ | | ||
融資租賃使用權資產，淨額（1） | | | ||||
租賃資產總額 | $ | | $ | | ||
負債： | ||||||
流動資產： | ||||||
經營租賃負債的到期付款 | $ | | $ | | ||
融資租賃負債的流動部分 | | | ||||
非流動資產： | ||||||
經營租賃負債，扣除流動部分 | | | ||||
攤薄每股收益（A類和B類）： | | | ||||
租賃負債的總額 | $ | | $ | | ||
| (1) | 截至2024年9月30日和2023年12月31日，融資租賃的使用權資產包括 |
截至2024年9月30日，預計的未來最低租金付款，不包括非租賃元件，如下：
（以千美元爲單位） |
| 營業租賃 | 融資租賃 | 總計 | |||||
September 30, | September 30, | September 30, | |||||||
2024 | 2024 | 2024 | |||||||
2024（剩餘） | $ | | $ | | $ | | |||
2025 |
| |
| |
| | |||
2026 |
| |
| |
| | |||
2027 |
| — | |
| | ||||
2028 | — | | | ||||||
租賃義務總額 |
| |
| |
| | |||
最小淨租金現值 |
| ( |
| ( |
| ( | |||
最低租賃費用合現值 |
| |
| |
| | |||
Less, current portion |
| ( |
| ( |
| ( | |||
開多期長期部分 | $ | | $ | | $ | | |||
2024年9月30日和2023年12月31日的其他信息如下：
September 30, | 12月31日, | ||
2024 | 2023 | ||
加權平均剩餘租賃期（年）： | |||
經營租賃 | |||
金融租賃 | |||
加權平均折扣率： | |||
經營租賃 | |||
金融租賃 |
截至2024年9月30日和2023年，經營租賃的經營現金流分別爲$
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截至2024年9月30日和2023 年停止的九個月內，用於支付融資租賃債務而獲得的融資租賃ROU資產爲$
營業租賃成本
三個月的營業租賃成本分別約爲百萬美元，分別在2024年和2023年。六個月的營業租賃成本分別約爲百萬美元，分別在2024年和2023年。
金融租賃成本
融資租賃攤銷和利息費用包括在截至2024年9月30日和2023年的三個月和九個月的簡明合併利潤表中。這些帳戶內的餘額低於$
7股東權益
普通股。
根據我們經過修訂的第三份修正和重新制定的公司章程，目前我們擁有
2024年9月30日結束的三個月和九個月內，公司分別發行了
在規定市場掛牌銷售協議
AGP銷售協議
公司於2021年4月2日與全球合作伙伴A.G.P./Alliance Global Partners（「AGP」）簽署了一項銷售協議，根據該協議，公司被允許提供並出售其每股面值爲$的普通股（「普通股」）（「股票」），合計銷售收益高達$百萬。股票可以直接或通過AGP作爲銷售代理（「AGP銷售協議」）出售，有時通過「市場定價發行」（根據《1933年證券法修正案》第415(a)(4)條規定）出售股票（「2021ATm發行」）。由於公司受到Form S-3指導書I.b.6.的發行限制，以及公司公開流通股在此類銷售適用日期的限制，同時受制於可授權和未發行股份的數量，公司在2021ATm發行中出售股票的數量受到限制，符合AGP銷售協議的條款。
我們的普通股股票銷售將通過AGP進行，根據SEC於2020年4月13日宣佈生效的S-3表格（文件編號333-237445）的註冊聲明（「註冊聲明」），擬定的總髮行價格高達$
根據AGP銷售協議，股票可通過法律允許的任何方式進行銷售，被視爲「市場發行」。AGP還可以通過法律允許的任何其他方式出售普通股股票，包括經公司事先書面同意的談判交易。在發送放置通知並在符合AGP銷售協議條款和條件的情況下，AGP必須盡最大商業合理努力，與其正常的交易和銷售慣例、適用的州和聯邦法律、規則和法規一致，
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the rules of The Nasdaq Capital Market to sell the Shares from time to time based upon the Company’s instructions, including any price, time or size limits specified by the Company. AGP is not under any obligation to purchase any of the Shares on a principal basis pursuant to the AGP Sales Agreement, except as otherwise agreed by AGP and the Company in writing and expressly set forth in a placement notice. AGP’s obligations to sell the Shares under the AGP Sales Agreement are subject to satisfaction of certain conditions, including customary closing conditions. The Company is not obligated to make any sales of Shares under the AGP Sales Agreement and any determination by the Company to do so will be dependent, among other things, on market conditions and the Company’s capital raising needs.
The Company agreed to pay AGP a cash fee of
During the three and nine months ended September 30, 2023, we received net proceeds of
As of the date of issuance of this Quarterly Report on Form 10-Q, we have received an aggregate of $
AGP 2023 Sales Agreement
On April 14, 2023, the Company entered into the AGP 2023 Sales Agreement, in an “at the market offering” (as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended) of the shares of Common Stock. AGP will be entitled to a commission at a fixed rate of
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 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, for an aggregate offering price of up to $
On April 8, 2024, we filed a prospectus supplement (the “April 2024 Prospectus Supplement”) to our prospectus dated April 25, 2023 registering the offer and sale of up to $
During the three and nine months ended September 30, 2023, we received net proceeds of
We have approximately $
Registered Direct Offering
On June 8, 2023, the Company, entered into a securities purchase agreement (the “Purchase Agreement”) with certain institutional investors (the “Purchasers”), pursuant to which the Company agreed to issue and sell to the Purchasers, in a registered direct offering (the “Registered Direct Offering”), an aggregate of: (i)
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date. The Pre-Funded Warrants are immediately exercisable, have an exercise price of $
In a concurrent private placement (the “Private Placement” and together with the Registered Direct Offering, the “Offering”), pursuant to the Purchase Agreement, the Company agreed to issue and sell to the Purchasers, for no additional consideration, warrants (the “RDO Common Warrants” and, together with the Shares and the Pre-Funded Warrants, the “Securities”) to purchase up to
The Registered Direct Offering resulted in gross proceeds to the Company of approximately $
The Purchase Agreement contains customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company, other obligations of the parties, and termination provisions. Additionally, each of the directors and executive officers of the Company, pursuant to lock-up agreements (the “Lock-Up Agreements”), agreed not to sell or transfer any of the Company securities which they hold, subject to certain exceptions, during the
On June 7, 2023, the Company also entered into a financial advisory agreement (the “Financial Advisor Agreement”) with A.G.P./Alliance Global Partners (the “Financial Advisor”). Pursuant to the terms of the Financial Advisor Agreement, the Financial Advisor agreed to use its reasonable best efforts to arrange for the sale of the Securities. The Company paid the Financial Advisor a cash fee of $
The Financial Advisor Agreement contains customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company and the Financial Advisor, including for liabilities under the Securities Act of 1933, as amended (the “Securities Act”), other obligations of the parties, and termination provisions.
Pursuant to the Purchase Agreement, the Company has agreed that, subject to certain exceptions, (i) it will not issue any shares of common stock or securities exercisable or convertible into shares of common stock or to file any registration statement or amendment or supplement thereto for a period of ninety (
18
Offering and that (ii) it will not enter into a variable rate transaction for a period of one hundred eighty (
The Registered Direct Offering was made pursuant to the 2023 Registration Statement, as supplemented by a prospectus supplement dated June 9, 2023. As a result of sales already made through the AGP 2023 Sales Agreement and the Registered Direct Offering, the Company has $
Preferred Stock.
The Company’s Board of Directors is authorized to issue up to
Series B Preferred Stock.
The Company filed a Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock (“Series B Preferred Stock”) with the State of Delaware, which designates
The conversion price of the Series B Preferred Stock contains a down round feature. The Company will recognize the effect of the down round feature when it is triggered. At that time, the effect would be treated as a deemed dividend and as a reduction of income available to common shareholders in our basic earnings per share calculation.
There were
Common Stock Warrants.
The following represents a summary of the warrants outstanding as of September 30, 2024:
|
|
| Underlying |
| Exercise | ||||
Issue Year | Expiration | Shares | Price | ||||||
Warrants | |||||||||
(1) | 2023 | December 2028 | | $ | | ||||
(1) These warrants were issued in connection with the 2023 registered direct offering and concurrent private placement and are the RDO common warrants discussed below.
During the three and nine months ended September 30, 2023,
During the three and nine months ended September 30, 2024,
RDO Common Warrants. In connection with the Registered Direct Offering and concurrent private placement in June 2023, the Company issued
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The RDO Common Warrants are exercisable beginning
8. FAIR VALUE
FASB guidance on fair value measurements, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements for our financial assets and liabilities, as well as for other assets and liabilities that are carried at fair value on a recurring basis in our condensed consolidated financial statements.
FASB guidance establishes a three-level fair value hierarchy based upon the assumptions (inputs) used to price assets or liabilities. The three levels of inputs used to measure fair value are as follows:
Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2—Observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets; and
Level 3—Unobservable inputs reflecting our own assumptions and best estimate of what inputs market participants would use in pricing the asset or liability.
Common Stock Warrant Liabilities.
Certain of our issued and outstanding warrants to purchase shares of common stock do not qualify to be treated as equity and, accordingly, are recorded as a liability. We are required to record these instruments at fair value at each reporting date and changes are recorded as a non-cash adjustment to earnings. The gains or losses included in earnings are reported in other income (expense) in our condensed consolidated statements of operations.
Bridge Note Warrant Liabilities
During 2018 and 2019, the Company issued warrants in connection with the issuance of convertible notes. All of these warrants issuances were classified as warrant liabilities (the “Bridge Note Warrant Liabilities”).
The Bridge Note Warrant Liabilities are considered Level 3 financial instruments and were valued using the Black Scholes model. During the nine months ended September 30, 2024, the last remaining warrants related to Bridge Note Warrant Liabilities expired and thus at September 30, 2024 there were
During the three and nine months ended September 30, 2024, the changes in the fair value of the warrant liabilities measured using significant unobservable inputs (Level 3) were
9. EQUITY INCENTIVE PLAN
The Company currently issues stock awards under its 2017 Stock Option and Incentive Plan, as amended (the “2017 Plan”) which will expire on
20
Stock Options.
The Company accounts for all stock-based compensation payments to employees and directors, including grants of employee stock options, at fair value at the date of grant and expenses the benefit in operating expense in the condensed consolidated statements of operations over the service period of the awards. The Company records the expense for stock-based compensation awards subject to performance-based milestone vesting over the remaining service period when management determines that achievement of the milestone is probable based on the expected satisfaction of the performance conditions as of the reporting date. The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option pricing model, which requires various assumptions including estimating stock price volatility, expected life of the stock option, risk free interest rate and estimated forfeiture rate.
During the nine months ended September 30, 2024, the Company granted stock options to purchase up to
On August 30, 2024, the Company’s board of directors (the “Board”) approved a one-time stock option repricing (the “Option Repricing”), effective August 31, 2024 (the “Effective Date”). The repricing was undertaken in accordance with, and as permitted by the 2017 Plan. The Option Repricing applies to all Relevant Options (as defined below) granted pursuant to the 2017 Plan that were held by employees, including executive officers and non-employee directors of the Board, to the extent such options had an exercise price in excess of $
Out of the Company’s approximately
Management determined that the Option Repricing represents a modification of the impacted awards and calculated incremental compensation cost of approximately $
21
The following table summarizes stock option activity under our plans during the nine months ended September 30, 2024:
| Number of |
| Weighted-Average | ||
Options | Exercise Price | ||||
Outstanding at January 1, 2024 |
| | $ | | |
Granted |
| |
| | |
Forfeited |
| ( |
| | |
Outstanding at September 30, 2024 |
| | $ | | |
Exercisable at September 30, 2024 |
| | $ | | |
As of September 30, 2024, there were
Restricted Stock Awards.
Restricted stock awards are subject to vesting restrictions. If a grantee’s service with the Company is terminated prior to vesting of the restricted stock, all unvested shares shall be forfeited and returned to the Company. Upon vesting, the restricted stock award shall no longer be deemed restricted.
As of September 30, 2024, there were
There were
Stock Compensation.
For the three and nine months ended September 30, 2024, we recorded non-cash stock-based compensation expense for all stock awards of $
10. SALES SERVICE REVENUE, NET AND ACCOUNTS RECEIVABLE
ASC Topic 606, “Revenue from contracts with customers”
The Company follows the guidance of ASC 606 for the recognition of revenue from contracts with customers to transfer goods and services. The Company performed a comprehensive review of its existing revenue arrangements following the five-step model:
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Step 1: Identification of the contract with the customer. Sub-steps include determining the customer in a contract, initial contract identification and determining if multiple contracts should be combined and accounted for as a single transaction.
Step 2: Identify the performance obligation in the contract. Sub-steps include identifying the promised goods and services in the contract and identifying which performance obligations within the contract are distinct.
Step 3: Determine the transaction price. Sub-steps include variable consideration, constraining estimates of variable consideration, the existence of a significant financing component in the contract, noncash consideration and consideration payable to a customer.
Step 4: Allocate transaction price. Sub-steps include assessing the amount of consideration to which the Company expects to be entitled in exchange for transferring the promised goods or services to the customer.
Step 5: Satisfaction of performance obligations. Sub-steps include ascertaining the point in time when an asset is transferred to the customer and when the customer obtains control of the asset upon which time the Company recognizes revenue.
Nature of Contracts and Customers
The Company’s contracts and related performance obligations are similar for its customers and the sales process for all customers starts upon the receipt of requisition forms from the customers for patient diagnostic testing and the execution of contracts for biomarker testing and clinical research. Payment terms for the services provided are 30 days, unless separately negotiated.
Diagnostic testing
Control of the laboratory testing services is transferred to the customer at a point in time. As such, the Company recognizes revenue for laboratory testing services at a point in time based on the delivery method (web-portal access or fax) for the patient’s laboratory report, per the contract.
Clinical research grants
Control of the clinical research services are transferred to the customer over time. The Company will recognize revenue utilizing the “effort based” method, measuring its progress toward complete satisfaction of the performance obligation.
Biomarker testing and clinical project services
Control of the biomarker testing and clinical project services are transferred to the customer over time. The Company utilizes an “effort based” method of assessing performance and measures progress towards satisfaction of the performance obligation based upon the delivery of results.
The Company generates revenue from the provision of diagnostic testing provided to patients, biomarker testing provided to bio-pharma customers and clinical research grants funded by both bio-pharma customers and government health programs.
Reagents and other diagnostic products
Control of reagents and other diagnostic products are transferred to the customer at a point in time and, as such, the Company recognizes these revenues at a point in time based on the delivery method. These revenues include revenues from reagent sets for our HSRR program and other product sales and are included in product revenue in our condensed consolidated statements of operations.
23
Disaggregation of Revenues by Transaction Type
We operate in
For the Three Months Ended September 30, | ||||||
(dollars in thousands) | Diagnostic Testing | |||||
| 2024 |
| 2023 | |||
Medicaid | $ | | $ | | ||
Medicare |
| |
| | ||
Self-pay |
| |
| | ||
Third party payers |
| |
| | ||
Contract diagnostics and other |
| |
| — | ||
Service revenue, net | $ | | $ | | ||
For the Nine Months Ended September 30, | ||||||
(dollars in thousands) | Diagnostic Testing | |||||
| 2024 |
| 2023 | |||
Medicaid | $ | | $ | | ||
Medicare |
| |
| | ||
Self-pay |
| |
| | ||
Third party payers |
| |
| | ||
Contract diagnostics and other |
| |
| — | ||
Service revenue, net | $ | | $ | | ||
Revenue from the Medicare and Medicaid programs account for a portion of the Company’s patient diagnostic service revenue. Laws and regulations governing those programs are extremely complex and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change by a material amount in the near term.
Revenue Recognition
Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price using the expected value method based on historical experience. The Company does not typically enter arrangements where multiple contracts can be combined as the terms regarding services are generally found within a single agreement/requisition form. The Company derives its revenues from the following types of transactions: diagnostic testing (“Diagnostic”), revenues from the Company’s ICP technology and bio-pharma projects encompassing genetic diagnostics (collectively “Biomarker”), revenues from clinical research grants from state and federal research programs and diagnostic product sales, including revenues from equipment leases and reagent sales associated with our HSRR program.
Deferred revenue
Deferred revenue, or unearned revenue, refers to advance payments for products or services that are to be delivered in the future. The Company records such prepayment of unearned revenue as a liability, as revenue that has not yet been earned, but represents products or services that are owed to a customer. As the product or service is delivered over time, the Company recognizes the appropriate amount of revenue from deferred revenue. For the periods ended September 30, 2024 and December 31, 2023, the deferred revenue was $
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Contractual Allowances and Adjustments
We are reimbursed by payers for services we provide. Payments for services covered by payers average less than billed charges. We monitor revenue and receivables from payers and record an estimated contractual allowance for certain revenue and receivable balances as of the revenue recognition date to properly account for anticipated differences between amounts estimated in our billing system and amounts ultimately reimbursed by payers. Accordingly, the total revenue and receivables reported in our condensed consolidated financial statements are recorded at the amounts expected to be received from these payers. For service revenue, the contractual allowance is estimated based on several criteria, including unbilled claims, historical trends based on actual claims paid, current contract and reimbursement terms and changes in customer base and payer/product mix. The billing functions for the remaining portion of our revenue are contracted and fixed fees for specific services and are recorded without an allowance for contractual discounts. The following table presents our revenues initially recognized for each associated payer class during the three and nine months ended September 30, 2024 and 2023.
For the Three Months Ended September 30, | ||||||||||||||||||
(dollars in thousands) | Contractual Allowances and | Revenues, net of Contractual | ||||||||||||||||
Gross Revenues | adjustments | Allowances and adjustments | ||||||||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||||
Medicaid | $ | | $ | | $ | — | $ | — | $ | | $ | | ||||||
Medicare |
| |
| |
| — |
| ( |
| |
| | ||||||
Self-pay |
| |
| |
| — |
| — |
| |
| | ||||||
Third party payers |
| |
| |
| ( |
| ( |
| |
| | ||||||
Contract diagnostics and other |
| |
| — |
| — |
| — |
| |
| — | ||||||
| |
| |
| ( |
| ( |
| |
| | |||||||
Product |
| |
| |
| — |
| — |
| |
| | ||||||
$ | | $ | | $ | ( | $ | ( | $ | | $ | | |||||||
For the Nine Months Ended September 30, | ||||||||||||||||||
(dollars in thousands) | Contractual Allowances and | Revenues, net of Contractual | ||||||||||||||||
Gross Revenues | adjustments | Allowances and adjustments | ||||||||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||||
Medicaid | $ | | $ | | $ | — | $ | — | $ | | $ | | ||||||
Medicare |
| |
| |
| — |
| ( |
| |
| | ||||||
Self-pay |
| |
| |
| — |
| — |
| |
| | ||||||
Third party payers |
| |
| |
| ( |
| ( |
| |
| | ||||||
Contract diagnostics |
| |
| — |
| — |
| — |
| |
| — | ||||||
| |
| |
| ( |
| ( |
| |
| | |||||||
Product |
| |
| |
| — |
| — |
| |
| | ||||||
$ | | $ | | $ | ( | $ | ( | $ | | $ | | |||||||
25
Allowance for Credit Losses
The Company provides for a general allowance for collectability of services when recording net sales. The Company has adopted the policy of recognizing net sales to the extent it expects to collect that amount. Reference is made to FASB 954-605-45-5 and ASU 2011-07, Health Care Entities: Presentation and Disclosure of Patient Service Revenue, Provision for Credit Loss, and the Allowance for Credit Losses. The change in the allowance for credit losses is directly related to the increase in patient service revenues. The following table presents our reported revenues net of the collection allowance and adjustments for the three and nine months ended September 30, 2024 and 2023.
For the Three Months Ended September 30, | ||||||||||||||||||
Revenues, net of |
| |||||||||||||||||
(dollars in thousands) | Contractual Allowances | Allowances for credit |
| |||||||||||||||
and adjustments | losses | Total | ||||||||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||||
Medicaid | $ | | $ | | $ | ( | $ | ( | $ | | $ | | ||||||
Medicare |
| |
| |
| ( |
| ( |
| |
| | ||||||
Self-pay |
| |
| |
| — |
| ( |
| |
| | ||||||
Third party payers |
| |
| |
| ( |
| ( |
| |
| | ||||||
Contract diagnostics and other |
| |
| — |
| — |
| — |
| |
| — | ||||||
| |
| |
| ( |
| ( |
| |
| | |||||||
Product |
| |
| |
| — |
| — |
| |
| | ||||||
$ | | $ | | $ | ( | $ | ( | $ | | $ | | |||||||
For the Nine Months Ended September 30, | ||||||||||||||||||
Revenues, net of |
| |||||||||||||||||
(dollars in thousands) | Contractual Allowances | Allowances for credit |
| |||||||||||||||
and adjustments | losses | Total | ||||||||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||||
Medicaid | $ | | $ | | $ | ( | $ | ( | $ | | $ | | ||||||
Medicare |
| |
| |
| ( |
| ( |
| |
| | ||||||
Self-pay |
| |
| |
| ( |
| ( |
| |
| | ||||||
Third party payers |
| |
| |
| ( |
| ( |
| |
| | ||||||
Contract diagnostics and other |
| |
| — |
| — |
| — |
| |
| — | ||||||
| |
| |
| ( |
| ( |
| |
| | |||||||
Product |
| |
| |
| — |
| — |
| |
| | ||||||
$ | | $ | | $ | ( | $ | ( | $ | | $ | | |||||||
Costs to Obtain or Fulfill a Customer Contract
Sales commissions are expensed when incurred because the amortization period would have been one year or less. These costs are recorded in operating expenses in the condensed consolidated statements of operations.
Shipping and handling costs are comprised of inbound and outbound freight and associated labor. The Company accounts for shipping and handling activities related to contracts with customers as fulfillment costs which are included in cost of sales in the condensed consolidated statements of operations.
Accounts Receivable
The Company has provided an allowance for potential credit losses, which has been determined based on management’s industry experience. The Company grants credit without collateral to its patients, most of who are insured under third party payer agreements.
26
The following summarizes the mix of receivables outstanding related to payer categories:
(dollars in thousands) |
| September 30, 2024 |
| December 31, 2023 | ||
Medicaid | $ | | $ | | ||
Medicare |
| |
| | ||
Self-pay |
| |
| | ||
Third party payers |
| |
| | ||
Contract diagnostic services, product and other |
| |
| | ||
$ | | $ | | |||
Less allowance for credit losses |
| ( |
| ( | ||
Accounts receivable, net | $ | | $ | | ||
The following table presents the roll-forward of the allowance for credit losses for the nine months ended September 30, 2024.
|
| Allowance for | ||||
Credit | ||||||
(dollars in thousands) | Losses | |||||
Balance, January 1, 2024 |
|
| $ | ( | ||
Provision for credit losses: |
|
|
|
| ||
Medicaid | $ | ( |
|
| ||
Medicare |
| ( |
|
| ||
Self-pay | ( | |||||
Third party payers |
| ( |
|
| ||
| ( |
|
| |||
Credit loss expense | $ | — |
|
| ||
Total charges |
|
|
| ( | ||
Balance, September 30, 2024 |
|
| $ | ( | ||
Customer Revenue and Accounts Receivable Concentration
Our customers are oncologists, hospitals, reference laboratories, physician-office laboratories, and pharma and biotech companies. Customers that accounted for 10% or greater of our net sales or accounts receivable for the identified periods is as follows:
Net sales | Net sales | Accounts receivable, as of | |||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | September 30, | December 31, | ||||||||||||
2024 | 2023 | 2024 | 2023 | 2024 | 2023 | ||||||||||
Customer A | * | % | * | % | * | * | |||||||||
Customer B | * | * | * | * | * | % | |||||||||
Customer C | % | * | % | * | % | * | |||||||||
Customer D | * | % | * | * | * | * | |||||||||
* represents less than 10% | |||||||||||||||
11. SUBSEQUENT EVENTS
The Company has evaluated events and transactions subsequent to September 30, 2024 through the date of this Quarterly Report on Form 10-Q, and there are no other events to report other than what has been disclosed in the condensed consolidated financial statements.
27
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Information
This Quarterly Report on Form 10-Q, including this Management’s Discussion and Analysis, contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, which statements involve substantial risks and uncertainties. These statements are based on management’s current views, assumptions or beliefs of future events and financial performance and are subject to uncertainty and changes in circumstances. Readers of this report should understand that these statements are not guarantees of performance or results. Many factors could affect our actual financial results and cause them to vary materially from the expectations contained in the forward-looking statements. These factors include, among other things: our expected revenue, income (loss), receivables, operating expenses, the effects of the recent Change Healthcare cyberattack on us or our operations, supplier pricing, availability and prices of raw materials, insurance reimbursements, product pricing, foreign currency exchange rates, sources of funding operations and acquisitions, our ability to raise funds, sufficiency of available liquidity, future interest and inflation costs, future economic circumstances, business strategy, industry conditions and key trends, our ability to execute our operating plans, the success of our cost savings initiatives, competitive environment and related market conditions, our ability to comply with the listing requirements of the Nasdaq Capital Market, expected financial and other benefits from our organizational restructuring activities, geopolitical uncertainties including the ongoing Russia and Ukraine conflict and the Israel-Hamas war, actions of governments and regulatory factors affecting our business, projections of future earnings, revenues, synergies, accretion or other financial items, any statements of the plans, strategies and objectives of management for future operations, retaining key employees and other risks as described in our reports filed with the SEC. In some cases these statements are identifiable through the use of words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would” or the negative of such terms and other similar expressions.
You are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Actual results may differ materially from those suggested by the forward-looking statements that we make for a number of reasons, including those described in Part II, Item 1A, “Risk Factors,” of this Quarterly Report on Form 10-Q and our prior filings with the Securities and Exchange Commission.
We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
The following discussion should be read together with our condensed consolidated financial statements and related notes contained in this Quarterly Report on Form 10-Q and with the financial statements, related notes and Management’s Discussion and Analysis included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which we filed with the Securities and Exchange Commission on March 29, 2024. Results for the three and nine months ended September 30, 2024 are not necessarily indicative of results that may be attained in the future.
Overview
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,
28
respectively, which house teams that collaborate on the development of new products and services. We operate 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.
Recent Developments
Change Healthcare
Change Healthcare (“CHC”), a subsidiary of UnitedHealth Group, suffered a cybersecurity breach in February 2024 which resulted in the temporary shut-down of some of its systems. Precipio uses CHC to process its billings for pathology services. Thus, when CHC shut down its business operations our pathology billings were halted. Our ability to process billings, accept payer remittances, process medical and billing benefit notices, bill secondary insurers, as well as patients, and communicate with commercial payers was severely impacted. Starting shortly after the breach, we redirected a significant amount of our internal resources to manually manufacture the billing services that CHC was no longer delivering. This resulted in billing and cash reimbursement delays during the nine months ended September 30, 2024.
Along with the delays in billing and cash reimbursements, we incurred approximately $0.2 million of expense during the nine months ended September 30, 2024, as we used alternative methods for claims processing. CHC established a Temporary Funding Assistance Program to help bridge the gap in short-term cash flow needs for its customers affected by the disruption of its services due to the cyberattack. During the nine months ended September 30, 2024, we received approximately $1.1 million from CHC through this program. See Note 4 Accrued Expenses for further discussion. As a result of the manual claims processing methods that we put in place following the CHC shutdown, our billing and cash reimbursement processes are nearly rectified as of September 30, 2024.
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 nine months ended September 30, 2024, the Company had a net loss of $3.9 million and net cash used in operating activities of $0.1 million.
29
As of September 30, 2024, the Company had an accumulated deficit of $102.1 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 the condensed consolidated financial statements were issued is dependent upon a combination of achieving its business plan, including generating additional revenue, and raising additional financing to meet its debt obligations and paying liabilities arising from normal business operations when they come due.
To meet its current and future obligations the Company has taken the following steps to capitalize the business:
| ● | 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. 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, we have 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. |
Notwithstanding the aforementioned circumstances, there remains substantial doubt about the Company’s ability to continue as a going concern over the next twelve months from the date of issuance of this Quarterly Report on Form 10-Q. There can be no assurance that the Company will be able to successfully achieve its initiatives summarized above in order to continue as a going concern.
Results of Operations for the Three Months Ended September 30, 2024 and 2023
Net Sales. Net sales were as follows:
Dollars in Thousands |
| |||||||||||
Three Months Ended | ||||||||||||
September 30, | Change |
| ||||||||||
| 2024 |
| 2023 |
| $ |
| % |
| ||||
Service revenue, net, less allowance for credit loss | $ | 4,528 | $ | 3,687 | $ | 841 | 23 | % | ||||
Product revenue |
| 681 |
| 831 | (150) | (18) | % | |||||
Net Sales | $ | 5,209 | $ | 4,518 | $ | 691 | 15 | % | ||||
Net sales for the three months ended September 30, 2024 were approximately $5.2 million, an increase of $0.7 million as compared to the same period in 2023. During the three months ended September 30, 2024, patient diagnostic service revenue increased $0.8 million as compared to the same period in 2023. This increase was due to a greater number of cases processed in the current year period. We processed 3,584 cases during the three months ended September 30, 2024 as compared to 2,105 cases during the same period in 2023, or a 70% increase in cases. The benefit of the increase in cases billed during the third quarter of 2024 as compared to the same period in 2023 was partially offset by a lower average price per case during the current year as a result of a different product mix. Product revenue decreased by $0.1 million for the three months ended September 30, 2024 as compared to the same period in 2023.
Cost of Sales. Cost of sales includes material and supply costs for the patient tests performed, costs related to HSRR products and other direct costs (primarily personnel costs, pathologist interpretation costs and rent) associated with the operations of our laboratory. Cost of sales increased by $0.3 million for the three months ended September 30, 2024 as compared to the same period in 2023.
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Gross Profit. Gross profit and gross margins were as follows:
| Dollars in Thousands |
| |||||||||
Three Months Ended | |||||||||||
September 30, | Margin % |
| |||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 |
| |||
Gross Profit | $ | 2,277 | $ | 1,885 |
| 44 | % | 42 | % | ||
Gross margin was 44% and 42% of total net sales for the three months ended September 30, 2024 and 2023, respectively. Gross profit was approximately $2.3 million and $1.9 million during the three months ended September 30, 2024 and 2023, respectively. The gross profit increased during the three months ended September 30, 2024, as compared to the prior year period, as a result of increases in case volume and revenue. We operate a fully staffed CLIA and College of American Pathologists (“CAP”) certified clinical pathology and molecular laboratory. As such, it is necessary to maintain appropriate staffing levels to provide industry standard laboratory processing and reporting to ordering physicians. An increase in case volume will enable our laboratory to yield economies of scale and to leverage fixed expenses.
Operating Expenses. Operating expenses primarily consist of personnel costs, professional fees, travel costs, facility costs, stock-based compensation costs and depreciation and amortization. Our operating expenses decreased by $0.5 million to $2.9 million for the three months ended September 30, 2024 as compared to the same period in 2023. The decrease was attributable to: (1) an increase of less than 0.1 million in stock-based compensation expense, (2) an increase of less than $0.1 million in general and administrative expenses due mainly to an increase of $0.1 million legal and professional fees and franchise taxes, partially offset by a decrease of less than $0.1 million in personnel costs (3) a decrease of $0.4 million in sales and marketing expenses due mainly to a decrease in personnel costs of $0.4 million as a result of a lower headcount, and (4) a decrease of $0.1 million in research and development expenses mainly related to decreases in operating supply costs and personnel costs.
Other (Expense) Income. We recorded net other expense of $29 thousand and $7 thousand for the three months ended September 30, 2024 and 2023, respectively, which was related to net interest expense.
Results of Operations for the Nine Months Ended September 30, 2024 and 2023
Net Sales. Net sales were as follows:
Dollars in Thousands | ||||||||||||
Nine Months Ended | ||||||||||||
September 30, | Change | |||||||||||
| 2024 |
| 2023 |
| $ |
| % |
| ||||
Service revenue, net, less allowance for doubtful accounts | $ | 11,146 | $ | 8,399 | $ | 2,747 | 33 | % | ||||
Product revenue |
| 1,936 |
| 2,469 | (533) | (22) | % | |||||
Net Sales | $ | 13,082 | $ | 10,868 | $ | 2,214 | 20 | % | ||||
Net sales for the nine months ended September 30, 2024 were approximately $13.1 million, an increase of $2.2 million as compared to the same period in 2023. During the nine months ended September 30, 2024, patient diagnostic service revenue increased $2.7 million as compared to the same period in 2023. This increase was due to a greater number of cases processed in the current year period. We processed 8,745 cases during the nine months ended September 30, 2024 as compared to 4,915 cases during the same period in 2023, or a 78% increase in cases. The benefit of the increase in cases billed during the third quarter of 2024 as compared to the same period in 2023 was partially offset by a lower average price per case during the current year as a result of a different product mix. Product revenue decreased by $0.5 million for the nine months ended September 30, 2024 as compared to the same period in 2023.
Cost of Sales. Cost of sales includes material and supply costs for the patient tests performed, costs related to HSRR products and other direct costs (primarily personnel costs, pathologist interpretation costs and rent) associated with
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the operations of our laboratory. Cost of sales increased by $1.3 million for the nine months ended September 30, 2024 as compared to the same period in 2023.
Gross Profit. Gross profit and gross margins were as follows:
Dollars in Thousands | |||||||||||
Nine Months Ended |
| ||||||||||
September 30, | Margin % | ||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Gross Profit | $ | 4,913 | 4,005 |
| 38 | % | 37 | % | |||
Gross margin was 38% of total net sales, for the nine months ended September 30, 2024 and 37% for the nine months ended September 30, 2023. Gross profit was approximately $4.9 million and $4.0 million during the nine months ended September 30, 2024 and 2023, respectively. The increase in gross profit during the nine months ended September 30, 2024, as compared to the prior year period, was a result of increases in case volume and revenue. We operate a fully staffed CLIA and CAP certified clinical pathology and molecular laboratory. As such, it is necessary to maintain appropriate staffing levels to provide industry standard laboratory processing and reporting to ordering physicians. An increase in case volume will enable our laboratory to yield economies of scale and to leverage fixed expenses.
Operating Expenses. Operating expenses primarily consist of personnel costs, professional fees, travel costs, facility costs, stock-based compensation costs and depreciation and amortization. Our operating expenses decreased by $2.0 million to $8.8 million for the nine months ended September 30, 2024 as compared to the same period in 2023. The decrease was attributable to: (1) a decrease of $0.1 million in stock-based compensation expense, (2) a decrease of $0.1 million in general and administrative expenses due a decrease in legal and professional fees of $0.3 million, partially offset by an increase of $0.1 million in franchise tax costs and an increase of $0.1 million in other costs, (3) a decrease of $1.3 million in sales and marketing expenses due mainly to a decrease in personnel costs of $1.2 million as a result of a lower headcount and a decrease of $0.1 million other costs and (4) a decrease of $0.4 million in research and development expenses mainly related to a decrease of $0.1 million in operating supplies, a decrease of $0.1 million in personnel costs and a decrease of $0.2 million in other costs.
Other (Expense) Income. We recorded net other expense of $45 thousand and $12 thousand for the nine months ended September 30, 2024 and 2023, respectively, which was related to net interest expense.
Liquidity and Capital Resources
Our working capital positions were as follows:
| September 30, 2024 |
| December 31, 2023 |
| Change | ||||
Current assets (including cash of $1,053 and $1,502 respectively) | $ | 3,255 | $ | 3,682 | $ | (427) | |||
Current liabilities |
| 4,478 |
| 3,141 |
| 1,337 | |||
Working capital | $ | (1,223) | $ | 541 | $ | (1,764) | |||
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During the nine months ended September 30, 2024 we received $0.6 million in proceeds from debt issuance and net proceeds of $0.1 million from sale of 11,822 shares of our common stock through at the market offerings. The Company has approximately $3.7 million available for future sales pursuant to the AGP 2023 Sales Agreement.
Analysis of Cash Flows – Nine Months Ended September 30, 2024 and 2023
| Nine Months Ended September 30, | ||||||||
| 2024 |
| 2023 |
| Change | ||||
Net cash used in operating activities | $ | (126) | $ | (3,673) | $ | 3,547 | |||
Net cash used in investing activities | (179) | (77) | (102) | ||||||
Net cash (used in) provided by financing activities |
| (144) |
| 1,867 |
| (2,011) | |||
Net change in cash | $ | (449) | $ | (1,883) | $ | 1,434 | |||
Cash Flows Used in Operating Activities. The cash flows used in operating activities of approximately $0.1 million during the nine months ended September 30, 2024 included a net loss of $3.9 million, an increase in inventories of $0.2 million and a decrease in operating lease liabilities of $0.2 million. These were partially offset by a decrease in accounts receivables of $0.1 million, a decrease in other assets of $0.1 million, an increase in accounts payable of $0.1 million, an increase in deferred revenues of $0.2 million, an increase in accrued expenses of $0.9 million and non-cash adjustments of $2.7 million. The non-cash adjustments included $0.2 million for the change in provision for credit losses. We routinely provide a reserve for credit losses as a result of having limited in-network payer contracts. The other non-cash adjustments to net loss of approximately $2.5 million include, among other things, depreciation and amortization, and stock-based compensation. The cash flows used in operating activities of approximately $3.7 million during the nine months ended September 30, 2023 included a net loss of $6.8 million, an increase in accounts receivables of $0.6 million and a decrease in operating lease liabilities and deferred revenue of $0.3 million. These were partially offset by a decrease in inventories of $0.1 million, a decrease in other assets of $0.3 million, an increase in accounts payable of $0.5 million, an increase in accrued expenses of $0.6 million, and non-cash adjustments of $2.5 million.
Cash Flows Used In Investing Activities. Cash flows used in investing activities were $0.2 million and $0.1 million for the nine months ended September 30, 2024 and 2023, respectively, resulting from purchases of property and equipment.
Cash Flows Used in or Provided by Financing Activities. Cash flows provided by financing activities totaled $0.2 million for the nine months ended September 30, 2024, which included $0.2 million of proceeds from debt and $0.1 million of proceeds from the issuance of common stock. These were partially offset by $0.4 million in payments on our long-term debt and finance lease obligations. Cash flows provided by financing activities totaled $1.9 million for the nine months ended September 30, 2023, which included $2.2 million of proceeds from the issuance of common stock partially offset by payments on our long-term debt and finance lease obligations of $0.3 million.
For further information regarding the Company’s future funding requirements, see the Going Concern disclosure in Note 1 of the Notes to Unaudited Condensed Consolidated Financial Statements included with this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements
At each of September 30, 2024 and December 31, 2023, other than certain purchase commitments of approximately $2.3 million and $1.9 million, respectively, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. The purchase commitments are mostly for laboratory reagents used in our normal operating business.
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Contractual Obligations and Commitments
No significant changes to contractual obligations and commitments occurred during the nine months ended September 30, 2024, as compared to those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the Securities and Exchange Commission on March 29, 2024.
Critical Accounting Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenues and expenses during the reporting period. Actual financial results based on judgments or estimates may vary under different assumptions or circumstances. Our critical accounting estimates are discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the Securities and Exchange Commission on March 29, 2024.
Recently Issued Accounting Pronouncements
See the accompanying unaudited condensed consolidated financial statements and Note 2 - “Summary of Significant Accounting Policies” in the Notes to unaudited condensed consolidated financial statements for additional information regarding recently issued accounting pronouncements.
Impact of Inflation
Inflation generally affects us with increased cost of labor and operating supplies. We do not believe that price inflation had a material adverse effect on our financial condition or results of operations during the periods presented.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company, as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information required under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, management performed, with the participation of our Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to management including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and no evaluation of controls and procedures can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2024.
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Changes in Internal Control over Financial Reporting
We have evaluated the changes in our internal control over financial reporting that occurred during the three months ended September 30, 2024 and concluded that there have not been any changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The healthcare industry is subject to numerous laws and regulations of federal, state and local governments. These laws and regulations include, but are not limited to, matters such as licensure, accreditation, government healthcare program participation requirement, reimbursement for patient services and Medicare and Medicaid fraud and abuse. Government activity has increased with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by healthcare providers.
Violations of these laws and regulations could result in expulsion from government healthcare programs together with the imposition of significant fines and penalties, as well as significant repayments for patient services previously billed. Management believes that the Company is in compliance with fraud and abuse regulations, as well as other applicable government laws and regulations. While no material regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation, as well as regulatory actions unknown or unasserted at this time.
The outcome of legal proceedings and claims brought against us are subject to significant uncertainty. Therefore, although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against us in the same reporting period for amounts in excess of management’s expectations, our financial statements for such reporting period could be materially adversely affected. In general, the resolution of a legal matter could prevent us from offering our services or products to others, could be material to our financial condition or cash flows, or both, or could otherwise adversely affect our operating results.
The Company is involved in legal proceedings related to matters, which are incidental to its business and is delinquent on the payment of outstanding accounts payable for certain vendors and suppliers who have taken or have threatened to take legal action to collect such outstanding amounts.
Item 1A. Risk Factors
As disclosed in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, there are a number of risks and uncertainties that may have a material effect on the operating results of our business and our financial condition. The following information updates, and should be read in conjunction with, the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, and other filings we make with the Securities and Exchange Commission, which could materially affect our business, financial condition or future results. The risks described in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.
We have incurred losses since our inception and expect to incur losses for the foreseeable future. We cannot be certain that we will achieve or sustain profitability.
We have incurred losses since our inception and expect to incur losses in the future. At September 30, 2024, we had a working capital deficit of $1.2 million. For the nine months ended September 30, 2024, we had an operating cash flow deficit of $0.4 million and a net loss of $3.9 million. For the period ended September 30, 2024, we have experienced negative cash flow from development of our diagnostic technology, as well as from the costs associated with establishing a laboratory and building a sales force to market our products and services. We expect to incur substantial net losses through at least 2024 as we further develop and commercialize our diagnostic technology. We also expect that our selling, general and administrative expenses will continue to increase due to the additional costs associated with market development activities and expanding our staff to sell and support our products. Our ability to achieve or, if achieved, sustain profitability is based on numerous factors, many of which are beyond our control, including the market acceptance of our products, competitive product development and our market penetration and margins. We may never be able to generate sufficient revenue to achieve or, if achieved, sustain profitability.
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We may need to raise substantial additional capital to commercialize our diagnostic technology, and our failure to obtain funding when needed may force us to delay, reduce or eliminate our product development programs or collaboration efforts or force us to restrict or cease operations.
As of September 30, 2024, we had cash of $1.1 million and a working capital deficit of $1.2 million. Due to our recurring losses from operations and the expectation that we will continue to incur losses in the future, we may be required to raise additional capital to complete the development and commercialization of our current product candidates and to pay off our obligations. To date, to fund our operations and develop and commercialize our products, we have relied primarily on equity and debt financings. In future periods, when we seek additional capital, we may seek to sell additional equity and/or debt securities or to obtain a credit facility, which we may not be able to do on favorable terms, or at all. Our ability to obtain additional financing will be subject to a number of factors, including market conditions, our operating performance and investor sentiment. If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly delay, scale back or discontinue the development and/or commercialization of one or more of our product candidates, restrict or cease our operations or obtain funds by entering into agreements on unattractive terms.
The sale or issuance of our common stock to, or through, AGP, or otherwise, may cause significant dilution and the sale of the shares of common stock acquired by AGP or others, or the perception that such sales may occur, could cause the price of our common stock to fall.
On April 14, 2023, we entered into a sales agreement with AGP, pursuant to which we may offer and sell our Common Stock, having aggregate sales proceeds of up to $5.8 million, to or through AGP, from time to time, in an at-the-market offering (the “2023 ATM Offering”). We are limited in the number of shares we can sell in the 2023 ATM Offering due to the offering limitations currently applicable to the Company under General Instruction I.B.6. of Form S-3 and the Company’s public float as of the applicable date of such sales, as well as the number of authorized and unissued shares available for issuance, in accordance with the terms of the AGP 2023 Sales Agreement. Sales to, or through, AGP by us could result in substantial dilution to the interests of other holders of our common stock. Additionally, the sale of a substantial number of shares of our common stock, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.
From April 14, 2023 through the date of issuance of this Quarterly Report on From 10-Q, we received $0.1 million in gross proceeds through the AGP 2023 Sales Agreement from the sale of 11,847 shares of Common Stock. The Company has an additional $3.7 million available for future sales pursuant to the AGP 2023 Sales Agreement. On January 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. We have approximately $1.0 million of remaining availability pursuant to this prospectus supplement.
We have issued a substantial number of warrants and equity awards from our equity plans which are exercisable into shares of our common stock which could result in substantial dilution to the ownership interests of our existing stockholders.
As of September 30, 2024, approximately 444,444 shares of our common stock were reserved for issuance upon exercise or conversion of outstanding warrants. Additionally, 304,025 shares of our common stock were reserved for issuance upon exercise of outstanding stock options. The exercise or conversion of these securities will result in a significant increase in the number of outstanding shares and substantially dilute the ownership interests of our existing stockholders. The shares underlying the equity awards from our equity plans are registered on a Form S-8 registration statement. As a result, upon vesting these shares can be freely exercised and sold in the public market upon issuance, subject to volume limitations applicable to affiliates. The exercise of options and the subsequent sale of the underlying common stock could cause a decline in our stock price.
Cybersecurity risks could compromise our information and expose us to liability, which may harm our ability to operate effectively and may cause our business and reputation to suffer.
Cybersecurity refers to the combination of technologies, processes and procedures established to protect information technology systems and data from unauthorized access, misuse, attack, or damage. We rely on our information systems to
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provide security for processing, transmission and storage of confidential information about our patients, customers and personnel, such as names, addresses and other individually identifiable information protected by the Health Insurance Portability and Accountability Act, (“HIPAA”), other privacy laws. We rely on our third-party providers to implement effective security measures and identify and correct for any such failures, deficiencies or incidents. We also rely on our employees and consultants to safeguard their security credentials and follow our policies and procedures regarding use and access of computers and other devices that may contain our sensitive information. If we or our third-party providers fail to maintain or protect our information technology systems and data integrity effectively or fail to anticipate, plan for or manage significant disruptions to our information technology systems, we or our third-party providers could have difficulty preventing, detecting and controlling such cyberattacks and any such attacks could result in losses described above, as well as disputes with physicians, patients and our partners, regulatory sanctions or penalties, increases in operating expenses, expenses or lost revenues or other adverse consequences, any of which could have a material adverse effect on our business, results of operations, financial condition, prospects and cash flows. Any failure by such third parties to prevent or mitigate security breaches or improper access to, misuse of, or disclosure of such information could have similarly adverse consequences for us. For example, our vendor, Change Healthcare, disclosed a security incident in February 2024 which resulted in temporary inaccessibility of certain of its information technology systems. While the Change Healthcare incident did not materially adversely affect our business, financial condition or operating results, it did result in temporary delays in our ability to complete our typical billing and reimbursement processes. If, in the future, we are unable to prevent or mitigate the impact of such security or data privacy breaches or other incidents, we could be exposed to litigation and governmental investigations, which could lead to a potential disruption to our business.
Cyberattacks are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect. Cyberattacks could include wrongful conduct by hostile foreign governments, industrial espionage, wire fraud and other forms of cyber fraud, the deployment of harmful malware, denial-of-service, social engineering fraud or other means to threaten data security, confidentiality, integrity and availability. A successful cyberattack could cause serious negative consequences for us, including, without limitation, the disruption of operations, the misappropriation of confidential business information, including financial information, trade secrets, financial loss and the disclosure of corporate strategic plans. The regulatory environment surrounding information security and privacy is increasingly demanding, with the frequent imposition of new and changing requirements. Compliance with changes in privacy and information security laws and with rapidly evolving industry standards may result in our incurring significant expense due to increased investment in technology and the development of new operational processes.
We have not experienced any known attacks on our information technology systems that compromised any confidential information. We maintain our information technology systems with safeguards designed to protect against cyberattacks including passive intrusion protection, firewalls and virus detection software. However, these safeguards do not ensure that a significant cyberattack could not occur. Although we have taken steps to protect the security of our information systems and the data maintained in those systems, it is possible that our safety and security measures will not prevent the systems’ improper functioning or damage or the improper access or disclosure of personally identifiable information such as in the event of cyberattacks.
Security incidents, including physical or electronic break-ins, computer viruses, attacks by hackers and similar incidents can create system disruptions or shutdowns or the unauthorized disclosure of, access to, or misuse of confidential information. If personal information or protected health information is improperly accessed, tampered with, misused or disclosed as a result of a security breach, we may incur significant costs to notify and mitigate potential harm to the affected individuals, and we may be subject to sanctions and civil or criminal penalties if we are found to be in violation of the privacy or security rules under HIPAA or other similar federal or state laws protecting confidential personal information. In addition, a security breach of or other incident affecting our information systems could damage our reputation, subject us to liability claims or regulatory penalties for compromised personal information and could have a material adverse effect on our business, financial condition and results of operations.
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Our products that we sell as research use only products and/or that we offer as laboratory developed tests could become subject to government regulations requiring marketing authorization, and the marketing authorization and maintenance process for such products may be expensive, time-consuming and uncertain in both timing and outcome.
A number of our products are currently, and in the future will be, labeled and sold as research use only (RUO) products. Even though our products are labeled and sold as RUO products, the United States Food and Drug Administration (FDA) could question whether our products are intended for research use only. For example, in August 2021, we were contacted by the FDA regarding HemeScreen, and we have subsequently revised the labeling for HemeScreen. Should the FDA disagree with our conclusion that our products are intended for research use only or deem our sales, marketing and promotional efforts as being inconsistent with RUO products, our products could be subject to government regulation as diagnostic products. Diagnostic products are regulated as medical devices by the FDA and may require marketing authorization from the FDA through clearance following the premarket notification (510(k)) process, authorization following a request for de novo classification or approval following the submission of a premarket approval (PMA) application, in each case prior to marketing. Obtaining the requisite marketing authorizations can be expensive and may involve considerable delay. Moreover, if the FDA believed we inappropriately labeled our products as RUO products, it could allege that we had misbranded or adulterated our RUO products. If the FDA asserts that our RUO products are subject to marketing authorization, or that our RUO products are adulterated or misbranded, our business, financial condition or results of operations could be adversely affected.
Additionally, our CLIA laboratory offers testing utilizing our laboratory developed tests (LDTs). Historically, the FDA has exercised enforcement discretion with respect to most LDTs and has not required laboratories that offer LDTs to comply with the FDA’s requirements for medical devices, such as the FDA’s requirements pertaining to marketing authorization, establishment registration, device listing, the Quality System Regulation, and other post-market controls. However, at various points in recent years, the FDA has stated it intends to end its policy of enforcement discretion and to actively regulate LDTs.
Most recently, on April 29, 2024, the FDA published a final rule on LDTs, in which FDA outlines its plans to end enforcement discretion for many LDTs in five stages over a four-year period.
| ● | In Phase 1 (effective May 6, 2025), clinical laboratories would be required to comply with medical device reporting, correction/removal reporting, and certain quality systems complaint handling requirements. |
| ● | In Phase 2 (effective May 6, 2026), clinical laboratories would be required to comply with all other device requirements (e.g., establishment registration and device listing, labeling, investigational use requirements), except for remaining quality systems requirements and premarket review requirements. |
| ● | In Phase 3 (effective May 6, 2027), clinical laboratories would be required to comply with all remaining applicable quality systems requirements. |
| ● | In Phase 4 (effective November 6, 2027), clinical laboratories would be required to comply with premarket submission requirements for high-risk tests (i.e., tests subject to FDA’s premarket approval (PMA) requirement). |
| ● | In Phase 5 (effective May 6, 2028), clinical laboratories would be required to comply with premarket submission requirements for moderate- and low-risk tests (i.e., tests subject to de novo classification or the 510(k) requirement). |
The final rule potentially extends enforcement discretion for certain tests, such as LDTs approved by the New York State Department of Health and LDTs first marketed prior to May 6, 2024 which are not modified or are modified in certain limited ways, from certain FDA regulatory requirements, provided certain important limitations have been met. We are actively reviewing the final rule to evaluate its applicability to our operations, and the extent to which we may be required to modify our operations to comply with its requirements.
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On May 29, 2024, the American Clinical Laboratory Association filed a lawsuit challenging the FDA’s authority to regulate LDTs as medical devices under the Federal Food, Drug, and Cosmetic Act. Subsequently, on August 19, 2024, the Association for Molecular Pathology filed a lawsuit similarly challenging FDA’s final rule on LDTs. The outcome of these lawsuits are uncertain at this time.
If the FDA were to determine that certain tests offered by us as LDTs are no longer eligible for enforcement discretion for any reason, including new rules, policies or guidance, or due to changes in statute, our test may become subject to extensive FDA requirements and our business, financial condition or results of operations may be adversely affected. If required, the regulatory marketing authorization process required to bring our current or future LDTs into compliance may involve, among other things, successfully completing additional clinical validations and submitting to and obtaining clearance, authorization or approval from the FDA. Furthermore, pending legislative proposals, if enacted, could create new or different regulatory and compliance burdens on us and could have a negative effect on our ability to keep products on the market or develop new products, which could have a material effect on our business.
In the event that the FDA requires marketing authorization of our LDTs in the future, the FDA may not ultimately grant any clearance, authorization or approval requested by us in a timely manner, may limit our indication in a way that is not commercially desirable, or refuse to provide such marketing authorization at all. In addition, if the FDA inspects our laboratory in relation to the marketing of any FDA-authorized test, any enforcement action the FDA takes might not be limited to the FDA-authorized test carried by us and could encompass our other testing services.
Unfavorable U.S. or global economic conditions could adversely affect our business, financial condition or results of operations.
Our results of operations could be adversely affected by general conditions in the global economy and financial markets. A severe or prolonged economic downturn or increase in inflation rates could result in a variety of risks to our business, including weakened demand for our products and services and our ability to raise additional capital when needed on favorable terms, if at all. A weak declining or inflationary economy could strain our collaborators and suppliers, possibly resulting in supply disruption, or cause delays in their payments to us. The future geopolitical landscape also remains particularly uncertain with the U.S. presidential election in November 2024. Any resulting changes in international trade relations, legislation and regulations, including those related to taxation and importation, or economic and monetary policies, or heightened diplomatic tensions or political and civil unrest, among other potential impacts, could adversely impact the global economy and our operating results.
In addition, the Company’s operations and access to capital may be impacted by disruptions to the banking system and financial market volatility resulting from bank failures, particularly in light of the recent events that have occurred with respect to Silicon Valley Bank (“SVB”) and other financial institutions.
Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business
There have been no other material changes from the risk factors disclosed in “Part I, Item 1A—Risk Factors” of our most recent Annual Report. The above risk factor should be read in conjunction with the risk factors disclosed therein.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended September 30, 2024, we did not have any sales of unregistered securities.
Item 3. Defaults Upon Senior Securities
Not applicable.
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Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Item 6. Exhibits
| (a) | Exhibits |
10.1 | ||
| ||
31.1 | ||
31.2 | ||
32.1* | ||
32.2* | ||
101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File – formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101. | |
* This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Registrant specifically incorporates it by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PRECIPIO, INC. | ||
Date: November 6, 2024 | By: | /S/ ILAN DANIELI |
Ilan Danieli | ||
Chief Executive Officer (Principal Executive | ||
Date: November 6, 2024 | By: | /S/ MATTHEW GAGE |
Matthew Gage | ||
Chief Financial Officer (Principal Financial and Accounting Officer) | ||
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