Precipio, Inc. (NASDAQ:PRPO) Q4 2020 Earnings Conference Call March 31, 2021 5:00 PM ET Company Participants Ilan Danieli - CEO Carl Iberger - CFO Conference Call Participants Operator Welcome to the Precipio Q4 2020 and Yearend Shareholder Update Call. All participants will be in a listen-only mode. [Operator Instructions] Please note that the conference is being recorded. Statements made during this call contain forward-looking statements about our business. You should not place undue reliance on forward- ...

Part I [Business](index=5&type=section&id=Item%201.%20Business) Precipio, Inc. is a cancer diagnostics company focused on mitigating misdiagnosis through a platform combining academic expertise with proprietary technologies - The company operates as a cancer diagnostics and reagent technology provider, aiming to reduce cancer misdiagnosis by leveraging academic expertise and proprietary technologies[15](index=15&type=chunk) - Precipio's key proprietary products include IV-Cell™ (a universal cell culture media), HemeScreen™ (genetic diagnostic panels for blood cancers), and the exclusively licensed ICE-COLD-PCR™ (a liquid biopsy specimen enrichment technology)[24](index=24&type=chunk)[31](index=31&type=chunk)[41](index=41&type=chunk) - The company targets the US domestic oncology market (over **$20 billion** annually) and the oncology reagent market (over **$14 billion** annually)[21](index=21&type=chunk) - In April 2020, Precipio formed a joint venture with Poplar Healthcare to provide oncology services to office-based physicians and medical centers[17](index=17&type=chunk) Employee Distribution as of March 25, 2021 | Department | Number of Employees | | :--- | :--- | | **Full-time** | **54** | | Finance, General & Administration | 12 | | Laboratory Operations | 21 | | Sales and Marketing | 10 | | Customer Service and Support | 5 | | Research & Development | 9 | | **Part-time** | **3** | [Risk Factors](index=21&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks, including substantial doubt about its ability to continue as a going concern, requiring additional financing, and intense competition - There is substantial doubt about the company's ability to continue as a going concern, having incurred a net loss of **$10.6 million** and negative working capital of **$0.5 million** for the year ended December 31, 2020[80](index=80&type=chunk) - The company requires significant additional financing to sustain operations, with a purchase agreement with Lincoln Park for up to **$10 million** in common stock to fund working capital needs[83](index=83&type=chunk)[84](index=84&type=chunk) - The COVID-19 pandemic has caused business interruptions ranging from **30% to 85%** in certain markets, and the ongoing impact remains uncertain[108](index=108&type=chunk)[110](index=110&type=chunk) - The company faces intense competition from specialized oncology service providers like Neogenomics and large commercial labs like LabCorp and Quest Diagnostics[51](index=51&type=chunk)[102](index=102&type=chunk) - The company's laboratories require ongoing CLIA certification, and failure to comply could result in suspension of operations and loss of Medicare/Medicaid reimbursement[130](index=130&type=chunk)[131](index=131&type=chunk) - The company received a PPP loan of **$787,200**, and if forgiveness is not granted by the SBA, the loan will need to be repaid, which could adversely affect cash flows[124](index=124&type=chunk)[125](index=125&type=chunk) [Unresolved Staff Comments](index=55&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments - None[187](index=187&type=chunk) [Properties](index=55&type=section&id=Item%202.%20Properties) Precipio leases approximately 7,630 sq. ft. of lab and office space in New Haven, CT, and 5,300 sq. ft. in Omaha, NE, which are deemed adequate for current needs - Leases office and laboratory space in New Haven, Connecticut (**7,630 sq. ft**, lease expires Dec 2021) and Omaha, Nebraska (**5,300 sq. ft**, lease expires May 2022)[188](index=188&type=chunk) [Legal Proceedings](index=55&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in incidental legal proceedings, including an unresolved claim from CPA Global and a settled lawsuit with Jesse Campbell - CPA Global claims approximately **$0.2 million** for patent maintenance services; the company has recorded a liability of less than **$0.1 million**[193](index=193&type=chunk) - The Jesse Campbell lawsuit from 2017 was settled for **$1.95 million**, with the company paying **$0.27 million** and its insurance covering the rest, closing the matter in June 2020[194](index=194&type=chunk)[196](index=196&type=chunk) [Mine Safety Disclosures](index=57&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not Applicable[197](index=197&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=58&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on the NASDAQ Capital Market under "PRPO", with 18,132,063 shares outstanding as of March 25, 2021, and no cash dividends paid or anticipated - Common stock trades on the NASDAQ Capital Market under the symbol "**PRPO**"[200](index=200&type=chunk) - As of March 25, 2021, there were **18,132,063** shares of common stock outstanding[201](index=201&type=chunk) - The company has never paid cash dividends and does not anticipate paying them in the foreseeable future[202](index=202&type=chunk) Quarterly Stock Price (2020) | Quarter Ended | High | Low | | :--- | :--- | :--- | | March 31, 2020 | $2.30 | $0.68 | | June 30, 2020 | $1.51 | $0.58 | | September 30, 2020 | $7.00 | $1.16 | | December 31, 2020 | $2.64 | $1.94 | [Selected Consolidated Financial Data](index=58&type=section&id=Item%206.%20Selected%20Consolidated%20Financial%20Data) As a smaller reporting company, Precipio is not required to provide the information for this item - The company is a smaller reporting company and is not required to provide this information[205](index=205&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=60&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In fiscal year 2020, Precipio's net sales increased by 95% to $6.1 million, driven by a 120% increase in patient diagnostic cases, despite reporting a net loss of $10.6 million and a working capital deficit of $0.5 million Results of Operations (2020 vs. 2019) | Metric (in thousands) | 2020 | 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $6,092 | $3,127 | $2,965 | 95% | | Gross Profit | $1,150 | $219 | $931 | 425% | | Gross Margin | 19% | 7% | - | - | | Operating Loss | ($9,146) | ($10,994) | $1,848 | (17%) | | Net Loss | ($10,598) | ($13,243) | $2,645 | (20%) | - The **95% increase in net sales** was primarily due to a **120% increase** in patient diagnostic cases processed, from **1,672 in 2019 to 3,677 in 2020**[227](index=227&type=chunk) - The company's financial condition raises substantial doubt about its ability to continue as a going concern, with a net loss of **$10.6 million**, negative working capital of **$0.5 million**, and **$7.4 million** cash used in operations as of December 31, 2020[221](index=221&type=chunk)[222](index=222&type=chunk) - To address liquidity, the company relies on an equity purchase agreement with Lincoln Park (of which **$8.8 million** has been drawn), a **$0.8 million** PPP loan, and an effective S-3 registration to offer up to **$50 million** in securities[225](index=225&type=chunk) Working Capital (in thousands) | | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Current Assets | $4,204 | $1,878 | | Current Liabilities | $4,656 | $4,334 | | **Working Capital** | **($452)** | **($2,456)** | [Quantitative and Qualitative Disclosures About Market Risk](index=76&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Price) As a smaller reporting company, Precipio is not required to provide the information for this item - The company is a smaller reporting company and is not required to provide this information[262](index=262&type=chunk) [Financial Statements and Supplementary Data](index=77&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) The consolidated financial statements for 2020 and 2019 are presented, with the auditor's report highlighting substantial doubt about the company's going concern ability and identifying critical audit matters - The independent auditor's report includes an explanatory paragraph expressing substantial doubt about the Company's ability to continue as a going concern due to significant working capital deficiency and recurring losses[266](index=266&type=chunk) - Critical Audit Matters identified by the auditor include: 1) Assessment of the estimation for collections over diagnostic testing revenue, and 2) Evaluation of changes in convertible debt to determine proper accounting treatment (extinguishment)[273](index=273&type=chunk)[276](index=276&type=chunk) Consolidated Balance Sheet Summary (in thousands) | | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $4,204 | $1,878 | | **Total Assets** | **$20,713** | **$19,511** | | Total Current Liabilities | $4,656 | $4,334 | | **Total Liabilities** | **$6,551** | **$6,306** | | **Total Stockholders' Equity** | **$14,162** | **$13,205** | Consolidated Statement of Operations Summary (in thousands) | | 2020 | 2019 | | :--- | :--- | :--- | | Net Sales | $6,092 | $3,127 | | Gross Profit | $1,150 | $219 | | Operating Loss | ($9,146) | ($10,994) | | **Net Loss** | **($10,598)** | **($13,243)** | | **Basic and Diluted Loss Per Share** | **($0.85)** | **($2.33)** | Consolidated Cash Flow Summary (in thousands) | | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | ($7,434) | ($9,141) | | Net cash used in investing activities | ($96) | ($55) | | Net cash provided by financing activities | $9,338 | $9,663 | | **Net Change in Cash** | **$1,808** | **$467** | | **Cash at End of Period** | **$2,656** | **$848** | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosures](index=151&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosures) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[512](index=512&type=chunk) [Controls and Procedures](index=151&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020, with no material changes during the fourth quarter - Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2020[515](index=515&type=chunk) - Management concluded that internal control over financial reporting was effective as of December 31, 2020[517](index=517&type=chunk) - No material changes were made to internal control over financial reporting during the quarter ended December 31, 2020[519](index=519&type=chunk) [Other Information](index=153&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[521](index=521&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=154&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information for this item will be included in the company's definitive 2021 Proxy Statement, incorporated by reference - Information is incorporated by reference from the forthcoming 2021 Proxy Statement[524](index=524&type=chunk) [Executive Compensation](index=154&type=section&id=Item%2011.%20Executive%20Compensation) Information for this item will be included in the company's definitive 2021 Proxy Statement, incorporated by reference - Information is incorporated by reference from the forthcoming 2021 Proxy Statement[525](index=525&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=154&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information for this item will be included in the company's definitive 2021 Proxy Statement, incorporated by reference - Information is incorporated by reference from the forthcoming 2021 Proxy Statement[526](index=526&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=154&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information for this item will be included in the company's definitive 2021 Proxy Statement, incorporated by reference - Information is incorporated by reference from the forthcoming 2021 Proxy Statement[527](index=527&type=chunk) [Principal Accountant Fees and Services](index=154&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information for this item will be included in the company's definitive 2021 Proxy Statement, incorporated by reference - Information is incorporated by reference from the forthcoming 2021 Proxy Statement[528](index=528&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=155&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the documents filed as part of the report, including financial statements and a list of 30 exhibits such as material contracts and officer certifications - The financial statements listed under Item 8 are filed as part of this report[531](index=531&type=chunk) - All financial statement schedules are omitted as they are inapplicable or the information is included in the notes to the financial statements[534](index=534&type=chunk) - A list of **30 exhibits** is provided, including material contracts, corporate charters, and officer certifications[535](index=535&type=chunk)[536](index=536&type=chunk)[537](index=537&type=chunk) [Form 10-K Summary](index=159&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reports no Form 10-K summary - None[539](index=539&type=chunk)

Precipio, Inc. (NASDAQ:PRPO) Q3 2020 Results Conference Call November 19, 2020 5:00 PM ET Company Participants Ilan Danieli - CEO Conference Call Participants Operator Good day, and welcome to the Precipio Quarterly Shareholder Update Call. All participants will be in a listen-only mode. [Operator Instructions] Please note that the conference is being recorded. Statements made during this call contain forward-looking statements about our business. You should not place undue reliance on forward-looking state ...

PART I. Financial Information This section provides a comprehensive overview of the company's financial performance, position, and cash flows, along with detailed notes and management's analysis [Item 1. Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Precipio, Inc. and its subsidiaries, including the balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes explaining the company's business, accounting policies, debt, equity, and revenue recognition [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's financial position, detailing assets, liabilities, and stockholders' equity at specific reporting dates Condensed Consolidated Balance Sheets (Dollars in thousands) | Item | September 30, 2020 (unaudited) | December 31, 2019 | | :--------------------------------- | :----------------------------- | :------------------ | | **ASSETS** | | | | Cash | $2,158 | $848 | | Accounts receivable, net | $1,086 | $574 | | Inventories | $280 | $184 | | Other current assets | $444 | $272 | | Total current assets | $3,968 | $1,878 | | Property and equipment, net | $460 | $431 | | Operating lease right-of-use assets | $358 | $519 | | Intangibles, net | $15,904 | $16,658 | | Other assets | $27 | $25 | | **Total assets** | **$20,717** | **$19,511** | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Current maturities of long-term debt | $530 | $321 | | Current maturities of convertible notes | $— | $142 | | Current maturities of finance lease liabilities | $37 | $52 | | Current maturities of operating lease liabilities | $219 | $209 | | Accounts payable | $1,829 | $1,936 | | Accrued expenses | $1,804 | $1,639 | | Deferred revenue | $48 | $35 | | Total current liabilities | $4,467 | $4,334 | | Long-term debt, net of current maturities | $500 | $198 | | Finance lease liabilities, net of current maturities | $108 | $119 | | Operating lease liabilities, net of current maturities | $150 | $317 | | Common stock warrant liabilities | $1,631 | $1,338 | | **Total liabilities** | **$6,856** | **$6,306** | | Total Precipio, Inc. stockholders' equity | $13,834 | $13,205 | | Noncontrolling interest in joint venture | $27 | $— | | **Total stockholders' equity** | **$13,861** | **$13,205** | | **Total liabilities and stockholders' equity** | **$20,717** | **$19,511** | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details the company's revenues, costs, and expenses, culminating in net loss and loss per share for the reporting periods Condensed Consolidated Statements of Operations (Dollars in thousands, except per share data) | Item | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :------------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Service revenue, net | $1,998 | $1,020 | $5,072 | $3,125 | | Other revenue | $51 | $26 | $104 | $37 | | Revenue, net of contractual allowances and adjustments | $2,049 | $1,046 | $5,176 | $3,162 | | Less allowance for doubtful accounts | $(422) | $(262) | $(1,025) | $(723) | | **Net sales** | **$1,627** | **$784** | **$4,151** | **$2,439** | | Total cost of sales | $1,250 | $756 | $3,478 | $2,201 | | **Gross profit** | **$377** | **$28** | **$673** | **$238** | | Operating expenses | $2,809 | $2,391 | $7,567 | $6,955 | | **Operating loss** | **$(2,432)** | **$(2,363)** | **$(6,894)** | **$(6,717)** | | Total other (expense) income | $(860) | $466 | $(1,835) | $(2,745) | | **Loss before income taxes** | **$(3,292)** | **$(1,897)** | **$(8,729)** | **$(9,462)** | | Net loss | $(3,292) | $(1,897) | $(8,729) | $(9,462) | | Net loss attributable to Precipio, Inc. common stockholders | $(3,302) | $(1,897) | $(12,100) | $(9,462) | | Basic and diluted loss per common share | $(0.21) | $(0.31) | $(1.01) | $(1.85) | | Basic and diluted weighted-average shares of common stock outstanding | 16,007,025 | 6,186,119 | 11,925,642 | 5,104,397 | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This section outlines changes in the company's equity, including net loss, stock issuances, and conversions of convertible notes - For the nine months ended September 30, 2020, total stockholders' equity increased from **$13,205 thousand** to **$13,861 thousand** primarily driven by the issuance of common stock in connection with purchase agreements (**$6,921 thousand**) and conversion of convertible notes (**$2,176 thousand**), partially offset by a net loss of **$(8,729) thousand** and deemed dividends related to beneficial conversion features (**$3,344 thousand**)[12](index=12&type=chunk)[159](index=159&type=chunk) - For the nine months ended September 30, 2019, total stockholders' equity increased from **$6,123 thousand** to **$15,294 thousand**, with key drivers including the conversion of convertible notes (**$7,390 thousand**), issuance of common stock in connection with purchase agreements (**$5,171 thousand**), and proceeds from warrant exercises (**$1,575 thousand**), despite a net loss of **$(9,462) thousand**[14](index=14&type=chunk)[104](index=104&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents the company's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Dollars in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(5,983) | $(7,001) | | Net cash used in investing activities | $(66) | $(49) | | Net cash flows provided by financing activities | $7,359 | $8,352 | | **NET CHANGE IN CASH** | **$1,310** | **$1,302** | | Cash at beginning of period | $848 | $381 | | **CASH AT END OF PERIOD** | **$2,158** | **$1,683** | - Supplemental non-cash activities for the nine months ended September 30, 2020, included **$2,176 thousand** from the conversion of convertible debt into common stock and a **$523 thousand** write-off of beneficial conversion feature in conjunction with convertible note extinguishment[20](index=20&type=chunk) - Supplemental non-cash activities for the nine months ended September 30, 2019, included **$7,390 thousand** from the conversion of convertible debt into common stock, **$1,792 thousand** for beneficial conversion feature on issuance of convertible notes, and **$1,858 thousand** for initial valuation of derivative liability[20](index=20&type=chunk) [Notes to the Unaudited Condensed Consolidated Financial Statements](index=14&type=section&id=Notes%20to%20the%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [1. BUSINESS DESCRIPTION](index=14&type=section&id=1.%20BUSINESS%20DESCRIPTION) Precipio, Inc. is a cancer diagnostics company focused on eradicating misdiagnosis through a platform leveraging academic expertise and technologies. The company operates a diagnostic laboratory in New Haven, CT, and an R&D facility in Omaha, NE, which recently received CLIA and CAP certification. In April 2020, Precipio formed a joint venture with Poplar Healthcare PLLC, holding a 49% ownership interest but consolidating it as a Variable Interest Entity (VIE) due to being the primary beneficiary. The company faces substantial doubt about its ability to continue as a going concern due to operating losses and negative working capital, but has taken steps to raise capital through equity agreements and a registration statement - Precipio, Inc. is a cancer diagnostics company providing diagnostic products and services to the oncology market, aiming to eradicate misdiagnosis through academic partnerships and proprietary technologies like IV-Cell, HemeScreen, and ICE-COLD-PCR (ICP)[22](index=22&type=chunk) - In April 2020, the Company formed a joint venture, Precipio Oncometrix LLC (POC), with Poplar Healthcare PLLC, where Precipio SPV holds a **49%** ownership interest but consolidates POC as a Variable Interest Entity (VIE) due to being the primary beneficiary[23](index=23&type=chunk)[24](index=24&type=chunk) - The Company has incurred substantial operating losses and negative working capital, leading to substantial doubt about its ability to continue as a going concern; mitigation efforts include a **$10.0 million** common stock purchase agreement with Lincoln Park Capital Fund LLC (of which **$6.7 million** has been received) and an effective S-3 registration statement for up to **$50 million** in securities[28](index=28&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk) [2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=18&type=section&id=2.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section outlines the basis of presentation for the condensed consolidated financial statements, which conform to GAAP and include all necessary adjustments for fair presentation. It details the consolidation of the Joint Venture as a Variable Interest Entity (VIE) where Precipio is the primary beneficiary. The company also adopted new FASB ASUs related to fair value measurement and internal use software capitalization, neither of which had a material impact, and is assessing the impact of upcoming ASUs on convertible instruments and income taxes - The condensed consolidated financial statements are prepared in conformity with GAAP and include the accounts of Precipio, its wholly-owned subsidiaries, and the Joint Venture, which is consolidated as a Variable Interest Entity (VIE) where Precipio is the primary beneficiary[32](index=32&type=chunk)[33](index=33&type=chunk)[43](index=43&type=chunk)[44](index=44&type=chunk) - The Company adopted ASU 2018-13 (Fair Value Measurement) and ASU 2018-15 (Intangibles—Goodwill and Other—Internal Use Software) on January 1, 2020, with no material impact on its financial statements[34](index=34&type=chunk)[35](index=35&type=chunk) - Precipio is currently assessing the potential impact of ASU 2020-06 (Accounting for Convertible Instruments and Contracts in an Entity's Own Equity) and ASU 2019-12 (Simplifying the Accounting for Income Taxes), with no material impact expected from the latter[36](index=36&type=chunk)[37](index=37&type=chunk) Outstanding Securities Excluded from Diluted Net Loss Per Share (in shares) | Security Type | September 30, 2020 | September 30, 2019 | | :------------ | :----------------- | :----------------- | | Stock options | 808,245 | 493,908 | | Warrants | 906,769 | 909,189 | | Preferred stock | 117,500 | 20,888 | | Convertible notes | — | 301,734 | | **Total** | **1,832,514** | **1,725,719** | [3. LONG-TERM DEBT](index=22&type=section&id=3.%20LONG-TERM%20DEBT) Precipio's long-term debt increased to $1,030 thousand as of September 30, 2020, from $519 thousand at December 31, 2019, primarily due to a new $787 thousand Paycheck Protection Program (PPP) Loan. The company also has a DECD loan, a financed insurance loan, and a settlement agreement, with the DECD loan's maturity extended due to COVID-19 relief Long-Term Debt (Dollars in Thousands) | Item | September 30, 2020 | December 31, 2019 | | :------------------------------------------------ | :----------------- | :----------------- | | Department of Economic and Community Development (DECD) | $240 | $249 | | DECD debt issuance costs | $(22) | $(24) | | Financed insurance loan | $19 | $260 | | September 2018 Settlement | $6 | $34 | | Paycheck Protection Program | $787 | $— | | **Total long-term debt** | **$1,030** | **$519** | | Current portion of long-term debt | $(530) | $(321) | | **Long-term debt, net of current maturities** | **$500** | **$198** | - The DECD 2018 Loan's maturity date was extended to **May 31, 2028**, due to COVID-19 payment deferral options, with no material impact on cash flows for the nine months ended September 30, 2020[48](index=48&type=chunk) - The Company secured an unsecured **$787,200** PPP Loan in April 2020, with a **1.00%** interest rate and deferred payments for six months; the Company intends to apply for forgiveness, believing it used the funds for qualifying expenses, but no assurance of forgiveness is provided[54](index=54&type=chunk)[55](index=55&type=chunk) [4. CONVERTIBLE NOTES](index=24&type=section&id=4.%20CONVERTIBLE%20NOTES) As of September 30, 2020, Precipio had no outstanding convertible notes, a significant change from December 31, 2019, when $142 thousand in convertible bridge notes were outstanding. This reduction is primarily due to the extinguishment and conversion of bridge notes, including the April 2019 and May 2019 Bridge Notes, which were amended in March 2020 to extend maturity and adjust floor prices, resulting in a $1.2 million loss on extinguishment. Various other convertible notes (Exchange, Crede, Leviston) were also fully converted or paid off by September 30, 2020 Convertible Notes (Dollars in Thousands) | Item | September 30, 2020 | December 31, 2019 | | :------------------------------------------------ | :----------------- | :----------------- | | Convertible bridge notes | $— | $1,938 | | Convertible bridge notes discount and debt issuance costs | $— | $(1,796) | | **Total convertible notes** | **$—** | **$142** | | Current portion of convertible notes | $— | $(142) | | **Convertible notes, net of current maturities** | **$—** | **$—** | - The March 2020 Amendment to the April 2019 and May 2019 Bridge Notes, which extended maturity and adjusted the conversion floor price, was treated as an extinguishment, resulting in a **$1.2 million** loss on extinguishment of convertible notes for the nine months ended September 30, 2020[70](index=70&type=chunk)[71](index=71&type=chunk) - During the nine months ended September 30, 2020, **$2.2 million** of bridge notes, plus interest, were converted into **3,908,145** shares of common stock; for the same period in 2019, **$4.6 million** of bridge notes were converted into **1,828,766** shares[72](index=72&type=chunk) - All previously issued Exchange Notes, Crede Note, and Leviston Note were fully converted or paid off by September 30, 2020, with zero outstanding balance[76](index=76&type=chunk)[81](index=81&type=chunk)[86](index=86&type=chunk) [5. ACCRUED EXPENSES OTHER CURRENT LIABILITIES.](index=31&type=section&id=5.%20ACCRUED%20EXPENSES%20OTHER%20CURRENT%20LIABILITIES.) Accrued expenses increased to $1,804 thousand at September 30, 2020, from $1,639 thousand at December 31, 2019, primarily due to a rise in accrued compensation. No gains on settlement of liability were recorded in 2020, compared to $1.3 million in 2019 Accrued Expenses (Dollars in Thousands) | Item | September 30, 2020 | December 31, 2019 | | :------------------ | :----------------- | :----------------- | | Accrued expenses | $1,247 | $1,268 | | Accrued compensation | $536 | $247 | | Accrued interest | $21 | $124 | | **Total** | **$1,804** | **$1,639** | - No gains on settlement of liability were recorded during the three and nine months ended September 30, 2020, compared to **$1.3 million** recorded during the nine months ended September 30, 2019[87](index=87&type=chunk) [6. COMMITMENTS AND CONTINGENCIES](index=31&type=section&id=6.%20COMMITMENTS%20AND%20CONTINGENCIES) Precipio is involved in legal proceedings, including a claim from CPA Global for patent management services and a class-action lawsuit filed by Jesse Campbell. The Campbell lawsuit was settled for $1.95 million, with the Company and its insurer paying their respective amounts, and the matter was closed in June 2020. The company also operates within a highly regulated healthcare industry, subject to various federal, state, and local laws, and believes it is in compliance, though future government review and interpretation are possible - CPA Global claims Precipio owes approximately **$0.2 million** for patent maintenance services, with less than **$0.1 million** recorded as a liability[89](index=89&type=chunk) - The Jesse Campbell class-action lawsuit, alleging misleading proxy statements, was settled for **$1.95 million**; the Company paid **$0.27 million** and its insurer paid **$1.68 million**, with the settlement approved and the matter closed in June 2020[90](index=90&type=chunk) - The healthcare industry is subject to complex federal, state, and local laws and regulations, including those related to licensure, accreditation, government healthcare program participation, reimbursement, and fraud and abuse; management believes the Company is in compliance, but future review and interpretation are possible[92](index=92&type=chunk)[93](index=93&type=chunk) [7. LEASES](index=33&type=section&id=7.%20LEASES) Precipio adopted ASC Topic 842 on January 1, 2019, recognizing ROU assets and lease liabilities for operating leases, while accounting for finance leases remains largely unchanged. As of September 30, 2020, total lease assets were $545 thousand and total lease liabilities were $514 thousand. Operating lease costs were approximately $0.1 million for the three months and $0.2 million for the nine months ended September 30, 2020 - Upon adoption of Topic 842 on January 1, 2019, the Company recorded initial ROU assets and corresponding operating lease liabilities of approximately **$750,000**[94](index=94&type=chunk) Lease Assets and Liabilities (Dollars in Thousands) | Item | September 30, 2020 | December 31, 2019 | | :------------------------------------------ | :----------------- | :----------------- | | Operating lease right-of-use assets, net | $358 | $519 | | Finance lease assets (Property and equipment, net) | $187 | $184 | | **Total lease assets** | **$545** | **$703** | | Current maturities of operating lease liabilities | $219 | $209 | | Current maturities of finance lease liabilities | $37 | $52 | | Operating lease liabilities, less current maturities | $150 | $317 | | Finance lease liabilities, less current maturities | $108 | $119 | | **Total lease liabilities** | **$514** | **$697** | - Operating lease costs were approximately **$0.1 million** for the three months ended September 30, 2020, and **$0.2 million** for the nine months ended September 30, 2020[100](index=100&type=chunk) [8. STOCKHOLDERS' EQUITY](index=35&type=section&id=8.%20STOCKHOLDERS'%20EQUITY) Precipio's common stock outstanding increased significantly due to conversions of convertible notes and issuances under purchase agreements with Lincoln Park. The company has two active purchase agreements with Lincoln Park (LP Purchase Agreement and LP 2020 Purchase Agreement), through which it has raised substantial capital by selling common stock. Series B Preferred Stock includes a down round feature, which was triggered in March 2020, adjusting the conversion price and resulting in a $3.3 million deemed dividend. Various common stock warrants are outstanding, with some also having down round provisions that triggered deemed dividends in March 2020 - During the nine months ended September 30, 2020, Precipio issued **3,908,145** shares of common stock from convertible note conversions (**$2.2 million**) and **4,870,654** shares from purchase agreements (**$6.9 million**)[103](index=103&type=chunk)[118](index=118&type=chunk) - Under the LP 2020 Purchase Agreement, the Company has received **$6.7 million** from the sale of **4,130,000** shares of common stock to Lincoln Park from April 1, 2020, through the date of issuance of this Form 10-Q, with an additional **$3.3 million** available to draw[30](index=30&type=chunk)[118](index=118&type=chunk) - The March 2020 Amendment triggered the down round feature of the Series B Preferred Stock, adjusting its conversion price from **$2.25** to **$0.40** per share and resulting in a **$3.3 million** deemed dividend[122](index=122&type=chunk)[159](index=159&type=chunk) Summary of Warrants Outstanding as of September 30, 2020 | Issue Year | Expiration | Underlying Shares | Exercise Price | | :--------- | :--------- | :---------------- | :------------- | | 2015 | Dec 2020 | 272 | $747.00 | | 2016 | Jan 2021 | 596 | $544.50 | | 2017 | Jun 2022 | 2,540 | $41.25 | | 2017 | Jun 2022 | 500 | $7.50 | | 2017 | Jun 2022 | 6,095 | $105.00 | | 2017 | Aug 2022 | 25,201 | $0.40 | | 2017 | Aug 2022 | 4,000 | $46.88 | | 2017 | Aug 2022 | 47,995 | $150.00 | | 2017 | Aug 2022 | 9,101 | $7.50 | | 2017 | Aug 2022 | 16,664 | $0.40 | | 2017 | Aug 2022 | 7,335 | $0.40 | | 2017 | Oct 2022 | 666 | $0.40 | | 2018 | Oct 2022 | 7,207 | $112.50 | | 2018 | Apr 2023 | 69,964 | $5.40 | | 2018 | Apr 2023 | 121,552 | $5.40 | | 2018 | Oct 2022 | 15,466 | $11.25 | | 2018 | Jul 2023 | 14,671 | $5.40 | | 2018 | Jul 2023 | 14,672 | $5.40 | | 2018 | Aug 2023 | 36,334 | $5.40 | | 2018 | Aug 2023 | 36,334 | $5.40 | | 2018 | Sep 2023 | 19,816 | $5.40 | | 2018 | Sep 2023 | 20,903 | $5.40 | | 2018 | Nov 2023 | 75,788 | $5.40 | | 2018 | Dec 2023 | 51,282 | $5.40 | | 2019 | Apr 2024 | 147,472 | $5.40 | | 2019 | May 2024 | 154,343 | $9.56 | | **Total** | | **906,769** | | [9. FAIR VALUE](index=48&type=section&id=9.%20FAIR%20VALUE) Precipio measures certain financial assets and liabilities at fair value using a three-level hierarchy. Common stock warrant liabilities, specifically the 2016 Warrant Liability and Bridge Note Warrant Liabilities, are recorded as liabilities and revalued at each reporting date, with changes recognized in earnings. These are considered Level 3 financial instruments, valued using Monte Carlo or Black-Scholes models. Derivative liabilities related to convertible notes, such as redemption features and conversion options, are also bifurcated and re-measured at fair value, with changes recognized in earnings - The Company uses a three-level fair value hierarchy (Level 1: quoted prices in active markets; Level 2: observable inputs other than Level 1; Level 3: unobservable inputs) to measure financial assets and liabilities[161](index=161&type=chunk) - Common stock warrant liabilities (2016 Warrant Liability and Bridge Note Warrant Liabilities) are recorded at fair value as Level 3 financial instruments, with revaluation gains/losses recognized in earnings; the 2016 Warrant Liability was valued using Monte Carlo, and Bridge Note Warrant Liabilities using Black-Scholes[162](index=162&type=chunk)[165](index=165&type=chunk)[166](index=166&type=chunk)[167](index=167&type=chunk) Change in Fair Value of Warrant Liabilities (Dollars in Thousands) | Item | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2020 | | :------------------------------------ | :------------------------------ | :----------------------------- | | Beginning balance | $774 | $1,338 | | Revaluation recognized in earnings | $857 | $293 | | **Balance at September 30** | **$1,631** | **$1,631** | | Item | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2019 | | :------------------------------------ | :------------------------------ | :----------------------------- | | Beginning balance | $2,336 | $1,132 | | Additions | $— | $1,858 | | Revaluation recognized in earnings | $(563) | $19 | | Modification recognized in earnings | $— | $1,128 | | Deductions – warrant liability settlement | $— | $(2,364) | | **Balance at September 30** | **$1,773** | **$1,773** | - Derivative liabilities related to Bridge Note redemption features and conversion options are bifurcated from debt and re-measured at fair value; for the nine months ended September 30, 2019, total derivative liabilities decreased from **$62 thousand** to zero, primarily due to write-offs in conjunction with convertible note conversions[169](index=169&type=chunk)[170](index=170&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk) [10. EQUITY INCENTIVE PLAN](index=53&type=section&id=10.%20EQUITY%20INCENTIVE%20PLAN) Precipio operates its 2017 Stock Option and Incentive Plan, with 913,586 shares authorized for issuance as of September 30, 2020, and 105,433 remaining available for future grants. During the nine months ended September 30, 2020, 393,050 stock options were granted at a weighted average exercise price of $1.99. Total stock-based compensation expense for the nine months ended September 30, 2020, was $0.5 million, with $1.7 million in unrecognized expense remaining - As of September 30, 2020, **913,586** shares were authorized for issuance under the 2017 Stock Option and Incentive Plan, with **105,433** shares remaining available for future grants[173](index=173&type=chunk) Stock Option Activity (Nine Months Ended September 30, 2020) | Item | Number of Options | Weighted-Average Exercise Price | | :-------------------------- | :---------------- | :------------------------------ | | Outstanding at January 1, 2020 | 490,330 | $8.30 | | Granted | 393,050 | $1.99 | | Forfeited | (75,135) | $13.86 | | **Outstanding at September 30, 2020** | **808,245** | **$4.72** | | Exercisable at September 30, 2020 | 335,493 | $7.03 | - For the nine months ended September 30, 2020, compensation expense for stock awards was **$0.5 million**; unrecognized compensation expense related to unvested awards was **$1.7 million**, expected to be recognized over a weighted-average period of **1.8 years**[177](index=177&type=chunk) [11. SALES SERVICE REVENUE, NET AND ACCOUNTS RECEIVABLE](index=55&type=section&id=11.%20SALES%20SERVICE%20REVENUE,%20NET%20AND%20ACCOUNTS%20RECEIVABLE) Precipio recognizes revenue from diagnostic testing, biomarker testing, and clinical research grants based on ASC Topic 606. Service revenue, net, for the three months ended September 30, 2020, was $1,998 thousand, and for the nine months, it was $5,072 thousand, with Medicare and Third-Party Payers being the largest contributors. The company records contractual allowances and an allowance for doubtful accounts, which increased significantly in 2020 due to higher patient service revenues. Accounts receivable, net, increased to $1,086 thousand at September 30, 2020, from $574 thousand at December 31, 2019 - Revenue is recognized when a customer obtains control of promised goods or services, with variable consideration estimated using the expected value method based on historical experience[189](index=189&type=chunk) Service Revenue, Net by Transaction Type (Dollars in Thousands) | Payer Type | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Medicaid | $15 | $10 | $40 | $22 | | Medicare | $811 | $373 | $1,979 | $1,217 | | Self-pay | $196 | $5 | $332 | $20 | | Third party payers | $950 | $490 | $2,313 | $1,297 | | Contract diagnostics | $26 | $142 | $408 | $569 | | **Service revenue, net** | **$1,998** | **$1,020** | **$5,072** | **$3,125** | Accounts Receivable, Net (Dollars in Thousands) | Payer Type | September 30, 2020 | December 31, 2019 | | :-------------------------- | :----------------- | :----------------- | | Medicaid | $132 | $107 | | Medicare | $1,002 | $814 | | Self-pay | $403 | $88 | | Third party payers | $3,211 | $2,203 | | Contract diagnostic services | $37 | $36 | | **Total gross receivables** | **$4,785** | **$3,248** | | Less allowance for doubtful accounts | $(3,699) | $(2,674) | | **Accounts receivable, net** | **$1,086** | **$574** | - The allowance for doubtful accounts increased from **$(2,674) thousand** at January 1, 2020, to **$(3,699) thousand** at September 30, 2020, reflecting an increase in patient service revenues[195](index=195&type=chunk)[202](index=202&type=chunk) [12. SUBSEQUENT EVENTS](index=63&type=section&id=12.%20SUBSEQUENT%20EVENTS) The Company has evaluated events and transactions subsequent to September 30, 2020, and reported no additional material events beyond those already disclosed in the condensed consolidated financial statements - No other events to report subsequent to September 30, 2020, through the date of issuance of the condensed consolidated financial statements, beyond what has been disclosed[204](index=204&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=64&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Precipio's financial condition and operational results for the three and nine months ended September 30, 2020, compared to 2019. It covers business overview, recent developments including new product launches and COVID-19 antibody tests, and reiterates the going concern warning. The discussion details significant increases in net sales and gross profit driven by higher case volumes, alongside changes in operating expenses and other income/expense. It also analyzes liquidity, capital resources, and cash flow activities, highlighting the reliance on equity financing [Forward-Looking Information](index=64&type=section&id=Forward-Looking%20Information) This section provides cautionary statements regarding forward-looking information, emphasizing inherent uncertainties and risks - The report contains forward-looking statements based on management's current views and assumptions, which are subject to uncertainty and changes in circumstances, and are not guarantees of future performance[206](index=206&type=chunk) - Readers are cautioned not to place undue reliance on forward-looking statements, as actual results may differ materially due to various factors, including those described in 'Risk Factors'; the Company disclaims any obligation to update these statements unless required by law[207](index=207&type=chunk)[208](index=208&type=chunk) [Overview](index=64&type=section&id=Overview) This section provides a high-level summary of Precipio's business as a cancer diagnostics company and its joint venture activities - Precipio is a cancer diagnostics company focused on eliminating misdiagnosis by leveraging academic expertise and technologies, operating a diagnostic laboratory in New Haven, CT, and an R&D facility in Omaha, NE[210](index=210&type=chunk)[212](index=212&type=chunk) - In April 2020, the Company formed a Joint Venture with Poplar Healthcare PLLC to provide oncology services, consolidating it as a Variable Interest Entity (VIE) due to Precipio being the primary beneficiary[213](index=213&type=chunk) [Recent Developments](index=66&type=section&id=Recent%20Developments) This section highlights recent business activities, including new product launches and strategic partnerships - During Q2 2020, Precipio launched its HemeScreen Reagent Rental (HSRR) program, enabling oncologists to perform in-house diagnostic tests, with installations and validations beginning in Q3 2020 and revenues expected in Q4 2020[214](index=214&type=chunk) - On July 30, 2020, the Company announced an agreement with ADS Biotec to distribute FDA-authorized COVID-19 serology antibody tests, which began rolling out as CLIA tests in Q3 2020, with plans for point-of-care and direct-to-consumer distribution pending further FDA authorization[215](index=215&type=chunk) - Antibody testing is highlighted as crucial for identifying individuals with immune responses to SARS-CoV-2, aiding in the return to normal societal functionality[216](index=216&type=chunk) [Going Concern](index=66&type=section&id=Going%20Concern) This section addresses the company's ability to continue operations, citing financial challenges and mitigation strategies - The Company's ability to continue as a going concern is in substantial doubt due to a net loss of **$8.7 million**, negative working capital of **$0.5 million**, and **$6.0 million** net cash used in operating activities as of September 30, 2020[217](index=217&type=chunk) - To address going concern issues, Precipio entered into a **$10.0 million** common stock purchase agreement with Lincoln Park (receiving **$6.7 million** to date) and has an effective S-3 registration statement for up to **$50 million** in securities[219](index=219&type=chunk) [Outlook - COVID-19 related](index=68&type=section&id=Outlook%20-%20COVID-19%20related) This section discusses the significant operational and financial impacts of the COVID-19 pandemic on the company's business - The COVID-19 pandemic has caused significant business disruption, with impacts on operational and financial performance depending on the outbreak's duration and spread, and its effects on customers, employees, and vendors[220](index=220&type=chunk) - The Company has experienced business interruptions ranging from **30%** to **85%** in certain urban markets and anticipates continued restrictions through the end of 2020 and possibly beyond[272](index=272&type=chunk) [Results of Operations for the Three Months Ended September 30, 2020 and 2019](index=69&type=section&id=Results%20of%20Operations%20for%20the%20Three%20Months%20Ended%20September%2030,%202020%20and%202019) This section analyzes the company's financial performance for the three-month period, focusing on net sales, gross profit, and operating expenses Net Sales (Dollars in Thousands) | Item | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Change ($) | Change (%) | | :------------------------------------------ | :------------------------------ | :------------------------------ | :--------- | :--------- | | Service revenue, net, less allowance for doubtful accounts | $1,576 | $758 | $818 | 108% | | Other | $51 | $26 | $25 | 96% | | **Net Sales** | **$1,627** | **$784** | **$843** | **108%** | - Net sales increased by **$0.8 million** (**108%**) for the three months ended September 30, 2020, primarily due to a **155%** increase in patient diagnostic service cases processed (**1,135** cases in 2020 vs. **445** in 2019)[223](index=223&type=chunk) Gross Profit and Margin (Dollars in Thousands) | Item | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Margin % 2020 | Margin % 2019 | | :--------- | :------------------------------ | :------------------------------ | :------------ | :------------ | | Gross Profit | $377 | $28 | 23% | 4% | - Operating expenses increased by **$0.4 million** to **$2.8 million**, driven by a **$0.3 million** increase in sales and marketing personnel costs and a **$0.1 million** increase in stock-based compensation[226](index=226&type=chunk) - Other expense, net, was **$0.9 million** for the three months ended September 30, 2020, primarily due to warrant revaluations, compared to other income, net, of **$0.5 million** in the prior year period[227](index=227&type=chunk)[228](index=228&type=chunk) [Results of Operations for the Nine Months Ended September 30, 2020 and 2019](index=71&type=section&id=Results%20of%20Operations%20for%20the%20Nine%20Months%20Ended%20September%2030,%202020%20and%202019) This section analyzes the company's financial performance for the nine-month period, detailing changes in net sales, gross profit, and operating expenses Net Sales (Dollars in Thousands) | Item | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | Change ($) | Change (%) | | :------------------------------------------ | :----------------------------- | :----------------------------- | :--------- | :--------- | | Service revenue, net, less allowance for doubtful accounts | $4,047 | $2,402 | $1,645 | 68% | | Other | $104 | $37 | $67 | 181% | | **Net Sales** | **$4,151** | **$2,439** | **$1,712** | **70%** | - Net sales increased by **$1.7 million** (**70%**) for the nine months ended September 30, 2020, driven by a **106%** increase in patient diagnostic service cases processed (**2,575** cases in 2020 vs. **1,250** in 2019)[229](index=229&type=chunk) Gross Profit and Margin (Dollars in Thousands) | Item | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | Margin % 2020 | Margin % 2019 | | :--------- | :----------------------------- | :----------------------------- | :------------ | :------------ | | Gross Profit | $673 | $238 | 16% | 10% | - Operating expenses increased by **$0.6 million** to **$7.6 million**, primarily due to a **$0.8 million** increase in sales and marketing personnel costs and a **$0.1 million** increase in stock-based compensation[232](index=232&type=chunk)[234](index=234&type=chunk) - Other expense, net, was **$1.8 million** for the nine months ended September 30, 2020, including **$1.2 million** loss on extinguishment of convertible notes and **$0.3 million** warrant revaluations, partially offset by **$0.2 million** other income (including HHS funds)[235](index=235&type=chunk) [Liquidity and Capital Resources](index=73&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's working capital, cash flow activities, and strategies for managing its financial resources Working Capital (Dollars in Thousands) | Item | September 30, 2020 | December 31, 2019 | Change ($) | | :------------------------------------------------ | :----------------- | :------------------ | :--------- | | Current assets (including cash) | $3,968 | $1,878 | $2,090 | | Current liabilities | $4,467 | $4,334 | $133 | | **Working capital** | **$(499)** | **$(2,456)** | **$1,957** | - During the nine months ended September 30, 2020, the Company received **$6.9 million** from common stock sales and converted **$2.2 million** of convertible notes into common stock[237](index=237&type=chunk) - Cash flows provided by financing activities totaled **$7.4 million** for the nine months ended September 30, 2020, including **$6.9 million** from common stock issuance and **$0.8 million** from the PPP Loan[241](index=241&type=chunk)[242](index=242&type=chunk) - Net cash used in operating activities was approximately **$6.0 million** for the nine months ended September 30, 2020, primarily due to a net loss of **$8.7 million** and increases in accounts receivable and inventories[239](index=239&type=chunk) [Off-Balance Sheet Arrangements](index=75&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of any material off-balance sheet arrangements impacting the company's financial condition - As of September 30, 2020, and December 31, 2019, the Company did not have any off-balance sheet arrangements that would materially affect its financial condition or results of operations[243](index=243&type=chunk) [Contractual Obligations and Commitments](index=75&type=section&id=Contractual%20Obligations%20and%20Commitments) This section notes no significant changes to the company's contractual obligations and commitments since the prior fiscal year - No significant changes to contractual obligations and commitments occurred during the nine months ended September 30, 2020, compared to those disclosed in the Annual Report on Form 10-K for fiscal year 2019[244](index=244&type=chunk) [Critical Accounting Policies and Estimates](index=75&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section refers to the company's annual report for details on significant accounting policies and management judgments - Critical accounting policies and estimates, which involve significant management judgments, are discussed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019[245](index=245&type=chunk) [Recently Issued Accounting Pronouncements](index=75&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) This section directs readers to the notes to financial statements for information on new accounting standards - Additional information regarding recently issued accounting pronouncements can be found in Note 2 – 'Summary of Significant Accounting Policies' of the unaudited condensed consolidated financial statements[246](index=246&type=chunk) [Impact of Inflation](index=75&type=section&id=Impact%20of%20Inflation) This section states that inflation has not had a material adverse effect on the company's financial performance - The Company does not believe that price inflation or deflation had a material adverse effect on its financial condition or results of operations during the periods presented[247](index=247&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=75&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Precipio, Inc. is exempt from providing quantitative and qualitative disclosures about market risk - Precipio, Inc. is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[248](index=248&type=chunk) [Item 4. Controls and Procedures](index=75&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, with the participation of the CEO and CFO, evaluated the effectiveness of Precipio's disclosure controls and procedures as of September 30, 2020, concluding they were effective at a reasonable assurance level. No material changes in internal control over financial reporting occurred during the three months ended September 30, 2020 - As of September 30, 2020, management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective at a reasonable assurance level[249](index=249&type=chunk)[251](index=251&type=chunk) - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during the three months ended September 30, 2020[252](index=252&type=chunk) PART II. Other Information This section provides additional non-financial information, including legal proceedings, risk factors, and exhibits [Item 1. Legal Proceedings](index=78&type=section&id=Item%201.%20Legal%20Proceedings) Precipio is involved in legal proceedings, including a claim from CPA Global for patent management services and a class-action lawsuit filed by Jesse Campbell. The Campbell lawsuit was settled for $1.95 million, with the Company and its insurer paying their respective amounts, and the matter was closed in June 2020. The company also operates within a highly regulated healthcare industry, subject to various federal, state, and local laws, and believes it is in compliance, though future government review and interpretation are possible - CPA Global claims Precipio owes approximately **$0.2 million** for patent management services, with less than **$0.1 million** recorded as a liability[254](index=254&type=chunk) - The Jesse Campbell class-action lawsuit, alleging misleading proxy statements, was settled for **$1.95 million**; the Company paid **$0.27 million** and its insurer paid **$1.68 million**, with the settlement approved and the matter closed in June 2020[255](index=255&type=chunk) - The healthcare industry is subject to complex federal, state, and local laws and regulations, including those related to licensure, accreditation, government healthcare program participation, reimbursement, and fraud and abuse; management believes the Company is in compliance, but future review and interpretation are possible[256](index=256&type=chunk)[257](index=257&type=chunk) [Item 1A. Risk Factors](index=78&type=section&id=Item%201A.%20Risk%20Factors) Precipio faces significant risks, including a history of losses and expected future losses, requiring substantial additional capital for commercialization. The company's ability to obtain funding on favorable terms is uncertain, which could force delays or cessation of operations. There's also a risk of delisting from Nasdaq if listing maintenance requirements are not met, despite regaining compliance with the minimum bid price rule. Furthermore, the COVID-19 pandemic poses ongoing disruption and financial impact, and the Paycheck Protection Program (PPP) loan carries the risk of repayment if forgiveness is not granted - Precipio has incurred losses since inception and expects to continue incurring losses, with a net loss of **$8.7 million**, negative working capital of **$0.5 million**, and **$6.0 million** net cash used in operating activities as of September 30, 2020[259](index=259&type=chunk) - The Company will need to raise substantial additional capital to commercialize its diagnostic technology, and failure to obtain funding on acceptable terms could force delays, reductions, or cessation of product development and operations[263](index=263&type=chunk) - While currently in compliance with Nasdaq listing requirements, the Company faces the risk of delisting if it cannot continue to satisfy maintenance requirements, which could negatively impact its stock price and liquidity[264](index=264&type=chunk)[266](index=266&type=chunk)[267](index=267&type=chunk) - The COVID-19 pandemic has significantly disrupted business operations, with ongoing uncertainty regarding its impact on revenues, expenses, and liquidity, and the Company anticipates continued challenges[270](index=270&type=chunk)[272](index=272&type=chunk)[273](index=273&type=chunk) - The Paycheck Protection Program (PPP) loan carries the risk that if forgiveness is not granted, the loan will need to be repaid, which could adversely affect the Company's future cash flows and financial position[276](index=276&type=chunk)[277](index=277&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=84&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Precipio, Inc. reported no unregistered sales of equity securities or use of proceeds for the period - No unregistered sales of equity securities and use of proceeds to report[278](index=278&type=chunk) [Item 3. Defaults Upon Senior Securities](index=84&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Precipio, Inc. reported no defaults upon senior securities for the period - Not applicable[279](index=279&type=chunk) [Item 4. Mine Safety Disclosures](index=84&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Precipio, Inc. reported no mine safety disclosures for the period - Not applicable[280](index=280&type=chunk) [Item 5. Other Information](index=84&type=section&id=Item%205.%20Other%20Information) Precipio, Inc. reported no other information for the period - None[281](index=281&type=chunk) [Item 6. Exhibits](index=84&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer, as well as XBRL instance and taxonomy documents - Exhibits include certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 from the Principal Executive Officer and Principal Financial Officer[283](index=283&type=chunk) - XBRL (eXtensible Business Reporting Language) documents, such as the Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, and Presentation Linkbase Documents, are also filed as exhibits[283](index=283&type=chunk)

Financial Data and Key Metrics Changes - The company reported significant progress in Q2 2020 despite the challenges posed by the COVID-19 pandemic, indicating a focus on growth and adaptation [5][31]. - The diagnostic services side of the business is expected to improve margins as volume increases, driving cash flow towards profitability [11][18]. Business Line Data and Key Metrics Changes - The pathology services segment has seen growth due to the successful integration of Oncometrix customers and the addition of new clients [10]. - The product side of the business, including technologies like IV-Cell and HemeScreen, is being commercialized, with expectations of substantial revenue shifts between diagnostic services and product sales in the next 12 months [18]. Market Data and Key Metrics Changes - The company is actively engaging in the COVID-19 testing market, having partnered with ADS Biotec to distribute FDA authorized serology tests, indicating a strategic pivot to meet market demands [24][30]. - The company is currently capable of producing 1 million tests per day, positioning itself to meet potential future demand as the FDA expands EUA for point-of-care and self-use tests [30]. Company Strategy and Development Direction - The company aims to leverage its COVID-19 testing initiatives as a means to generate shareholder value while maintaining focus on its core business [31]. - Strategic partnerships are being explored to enhance the market introduction of products like IV-Cell and HemeScreen, aiming for rapid adoption and distribution [15][18]. Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate the challenges posed by the pandemic while capitalizing on new opportunities in the testing market [32][33]. - The company believes that the next steps in reopening the economy will involve expanded testing capabilities, which aligns with its strategic goals [26][29]. Other Important Information - The company has developed a strong pipeline for HemeScreen, targeting physician office laboratories, which have been seeking to improve service quality and efficiency during the pandemic [17]. - The management emphasized the importance of adhering to FDA guidelines and processes in the development and marketing of their COVID-19 tests [28]. Q&A Session Summary Question: What is the company's strategy regarding COVID-19 testing? - The company has partnered with ADS Biotec to distribute FDA authorized COVID-19 serology tests and is focusing on leveraging its existing customer base for initial rollout [24]. Question: How does the company plan to handle the production and distribution of tests? - The company is currently capable of producing 1 million tests per day and is preparing distribution channels for potential expanded use of the tests [30].

PART I. Financial Information [Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents Precipio, Inc.'s unaudited condensed consolidated financial statements for H1 2020, highlighting a **$5.4 million net loss**, **$2.7 million negative working capital**, and substantial doubt about going concern [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2020, total assets were **$19.0 million**, total liabilities **$6.4 million**, and stockholders' equity **$12.6 million**, with a **$2.7 million negative working capital** Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2020 (unaudited) | December 31, 2019 | | :--- | :--- | :--- | | **Total Current Assets** | $2,015 | $1,878 | | **Total Assets** | $19,034 | $19,511 | | **Total Current Liabilities** | $4,680 | $4,334 | | **Total Liabilities** | $6,407 | $6,306 | | **Total Stockholders' Equity** | $12,627 | $13,205 | | **Working Capital** | ($2,665) | ($2,456) | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q2 2020 net sales grew **39% to $1.3 million** with a **$2.2 million net loss**, while H1 2020 net sales grew **53% to $2.5 million** but net loss widened to **$8.8 million** due to a deemed dividend Q2 Performance (in thousands, except per share data) | Metric | Q2 2020 | Q2 2019 | | :--- | :--- | :--- | | Net Sales | $1,308 | $942 | | Gross Profit | $171 | $172 | | Operating Loss | ($2,259) | ($2,295) | | Net Loss Attributable to Common Stockholders | ($2,249) | ($5,913) | | Basic and Diluted Loss Per Share | ($0.20) | ($1.05) | Six-Month Performance (in thousands, except per share data) | Metric | H1 2020 | H1 2019 | | :--- | :--- | :--- | | Net Sales | $2,524 | $1,655 | | Gross Profit | $296 | $210 | | Operating Loss | ($4,462) | ($4,354) | | Net Loss Attributable to Common Stockholders | ($8,798) | ($7,565) | | Basic and Diluted Loss Per Share | ($0.89) | ($1.66) | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Total stockholders' equity decreased by **$0.6 million** in H1 2020 due to a **$5.5 million net loss**, partially offset by **$4.8 million** from common stock issuances and note conversions, nearly doubling outstanding shares - For the six months ended June 30, 2020, total stockholders' equity decreased by approximately **$0.6 million**. This was mainly due to a net loss of **$5.45 million**, which was largely offset by **$4.8 million** in capital raised from common stock issuances via note conversions and purchase agreements[12](index=12&type=chunk) - The number of outstanding common shares increased significantly from **7,898,117** at the beginning of the year to **14,616,916** at June 30, 2020, primarily due to conversions of debt and stock purchase agreements[12](index=12&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) H1 2020 saw **$3.6 million cash used in operations**, offset by **$3.1 million from financing**, resulting in a **$0.5 million net cash decrease** and a **$0.4 million ending cash balance** Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | ($3,562) | ($4,887) | | Net cash used in investing activities | ($10) | ($30) | | Net cash provided by financing activities | $3,077 | $5,705 | | **Net Change in Cash** | **($495)** | **$788** | | **Cash at End of Period** | **$353** | **$1,169** | [Notes to the Condensed Consolidated Financial Statements](index=14&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, a joint venture with Poplar Healthcare, **going concern doubt** due to losses and **negative working capital**, long-term debt including a **$0.8 million PPP loan**, convertible note activities, and **equity financing** - The company's financial statements are prepared on a going concern basis, but management has identified substantial doubt about its ability to continue as a going concern due to a history of operating losses, negative working capital of **$2.7 million**, and net cash used in operations of **$3.6 million** as of June 30, 2020[27](index=27&type=chunk) - In April 2020, the company formed a joint venture, Precipio Oncometrix LLC, with Poplar Healthcare, holding a **49% interest**, and consolidates the joint venture as a Variable Interest Entity (VIE)[23](index=23&type=chunk)[32](index=32&type=chunk)[42](index=42&type=chunk) - On April 23, 2020, the company received a **$787,200** loan under the Paycheck Protection Program (PPP), which it believes has been used for qualifying expenses and will apply for forgiveness[52](index=52&type=chunk)[53](index=53&type=chunk) - A March 2020 amendment to convertible notes triggered a down-round feature in the Series B Preferred Stock, adjusting its conversion price to **$0.40** from **$2.25**, resulting in a non-cash deemed dividend of approximately **$3.3 million**[118](index=118&type=chunk)[154](index=154&type=chunk) - The company relies heavily on equity financing, having raised **$2.6 million** in the first six months of 2020 through purchase agreements with Lincoln Park Capital[107](index=107&type=chunk)[109](index=109&type=chunk)[113](index=113&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=65&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, liquidity, and capital resources, covering business overview, recent developments like **Nasdaq compliance** and **COVID-19 test market entry**, and the significant **going concern risk** - The company regained compliance with Nasdaq's **$1.00** minimum bid price requirement on June 29, 2020[213](index=213&type=chunk) - On July 30, 2020, the company announced an agreement with ADS Biotec to distribute its FDA-authorized COVID-19 serology antibody tests[214](index=214&type=chunk) - Management reiterates that there is substantial doubt about the company's ability to continue as a going concern, dependent on achieving its business plan and raising additional financing[218](index=218&type=chunk)[219](index=219&type=chunk) [Results of Operations](index=70&type=section&id=Results%20of%20Operations) Q2 2020 net sales grew **39% to $1.3 million** with gross profit flat at **$0.2 million**, while H1 2020 net sales grew **53% to $2.5 million** due to increased cases and sales force expansion Q2 2020 vs. Q2 2019 Results (in thousands) | Metric | Q2 2020 | Q2 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $1,308 | $942 | $366 | 39% | | Cost of Sales | $1,137 | $770 | $367 | 48% | | Gross Profit | $171 | $172 | ($1) | -1% | | Gross Margin | 13% | 18% | - | - | H1 2020 vs. H1 2019 Results (in thousands) | Metric | H1 2020 | H1 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $2,524 | $1,655 | $869 | 53% | | Cost of Sales | $2,228 | $1,445 | $783 | 54% | | Gross Profit | $296 | $210 | $86 | 41% | | Gross Margin | 12% | 13% | - | - | - The increase in net sales was primarily driven by a significant increase in patient diagnostic cases processed (**76%** in Q2 and **79%** in H1), resulting from an increased sales force[222](index=222&type=chunk)[227](index=227&type=chunk) [Liquidity and Capital Resources](index=74&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2020, the company had a **$2.7 million working capital deficit** and **$0.4 million cash**, relying on **$2.6 million stock sales** and a **$0.8 million PPP loan** to fund **$3.6 million operating cash outflow**, with substantial doubt about going concern Working Capital Position (in thousands) | Metric | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Current Assets | $2,015 | $1,878 | | Current Liabilities | $4,680 | $4,334 | | **Working Capital** | **($2,665)** | **($2,456)** | - Cash decreased by **$0.5 million** in H1 2020. Financing activities, including a **$2.6 million** stock issuance and a **$0.8 million** PPP loan, were crucial for funding the **$3.6 million** operating cash outflow[235](index=235&type=chunk)[236](index=236&type=chunk)[239](index=239&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=76&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Precipio is exempt from providing quantitative and qualitative disclosures about market risk - As a smaller reporting company, Precipio is exempt from providing quantitative and qualitative disclosures about market risk[245](index=245&type=chunk) [Controls and Procedures](index=76&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2020, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2020[248](index=248&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2020[249](index=249&type=chunk) PART II. Other Information [Legal Proceedings](index=79&type=section&id=Item%201.%20Legal%20Proceedings) The company reports the dismissal of the Jesse Campbell lawsuit and an unresolved **$0.2 million claim** from CPA Global for patent services, with a **less than $0.1 million liability** recorded - The Jesse Campbell lawsuit was settled and officially dismissed by the court on June 3, 2020, and this matter is now closed[252](index=252&type=chunk) - A claim from CPA Global for approximately **$0.2 million** in patent maintenance services remains unresolved. The company has recorded a liability of less than **$0.1 million** for this matter[251](index=251&type=chunk) [Risk Factors](index=79&type=section&id=Item%201A.%20Risk%20Factors) Key risks include a history of losses, **negative working capital**, the critical need for **additional capital**, **NASDAQ listing compliance**, **COVID-19 pandemic impact**, and **PPP loan forgiveness uncertainty** - The company has a history of losses, had negative working capital of **$2.7 million** as of June 30, 2020, and requires substantial additional capital to continue operations and commercialize its technology[256](index=256&type=chunk)[260](index=260&type=chunk) - The COVID-19 pandemic poses a significant risk, with the company having experienced business interruptions in certain urban markets ranging from **30% to 85%**, and the full and ongoing impact remains uncertain[267](index=267&type=chunk)[269](index=269&type=chunk) - The company regained compliance with Nasdaq's minimum bid price rule on June 29, 2020, but faces the risk of future delisting if it cannot continue to satisfy listing requirements[261](index=261&type=chunk)[263](index=263&type=chunk) - The company received a **$787,200** PPP loan, but there is no assurance that the loan will be forgiven in whole or in part, and repayment could adversely affect future cash flows[271](index=271&type=chunk)[274](index=274&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=85&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the period - None[275](index=275&type=chunk) [Defaults Upon Senior Securities](index=85&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Not applicable - Not applicable[276](index=276&type=chunk) [Mine Safety Disclosures](index=85&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable - Not applicable[277](index=277&type=chunk) [Other Information](index=85&type=section&id=Item%205.%20Other%20Information) The company reported no other information - None[278](index=278&type=chunk) [Exhibits](index=85&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the report, including Sarbanes-Oxley certifications and XBRL data files - The report includes certifications from the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act, as well as XBRL data files[280](index=280&type=chunk)

Precipio, Inc. (NASDAQ:PRPO) Q1 2020 Earnings Conference Call May 19, 2020 5:00 PM ET Company Participants Miri Radomski - In-House Counsel Ilan Danieli - CEO Carl Iberger - CFO Conference Call Participants Operator Good day and welcome to the Precipio Quarterly Shareholder Update Call. All participants will be in a listen-only mode. [Operator Instructions] Please note that the conference is being recorded. [Operator instructions] Please note that the conference is being recorded. Statements made during thi ...

PART I. Financial Information This section presents Precipio, Inc.'s unaudited condensed consolidated financial statements and management's analysis for Q1 2020 [Item 1. Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents Precipio, Inc.'s unaudited condensed consolidated financial statements for Q1 2020 and 2019, with detailed notes on financial position, performance, and cash flows [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows a decrease in total assets and stockholders' equity from December 31, 2019, to March 31, 2020, while total liabilities significantly increased, primarily driven by current maturities of convertible notes Condensed Consolidated Balance Sheet Highlights (Dollars in thousands) | Item | March 31, 2020 (unaudited) | December 31, 2019 | | :-------------------------------- | :------------------------- | :------------------ | | Total assets | $18,995 | $19,511 | | Total liabilities | $7,710 | $6,306 | | Total stockholders' equity | $11,285 | $13,205 | | Cash | $417 | $848 | | Accounts receivable, net | $883 | $574 | | Current maturities of convertible notes | $2,292 | $142 | | Total current liabilities | $6,739 | $4,334 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the three months ended March 31, 2020, the company reported increased net sales but a significantly higher net loss compared to the prior year, primarily due to a substantial loss on extinguishment of convertible notes and increased interest expense Condensed Consolidated Statements of Operations Highlights (Three Months Ended March 31, Dollars in thousands, except per share data) | Item | 2020 | 2019 | | :------------------------------------ | :----- | :----- | | Net sales | $1,216 | $713 | | Gross profit | $125 | $38 | | Operating loss | $(2,203) | $(2,059) | | Total other expenses (income) | $(1,002) | $407 | | Loss before income taxes | $(3,205) | $(1,652) | | Net loss | $(3,205) | $(1,652) | | Deemed dividends | $(3,344) | $— | | Net loss available to common stockholders | $(6,549) | $(1,652) | | Basic and diluted loss per common share | $(0.78) | $(0.48) | | Weighted-average shares outstanding | 8,371,956 | 3,441,893 | - Net sales increased by **71%** from **$713 thousand** in Q1 2019 to **$1,216 thousand** in Q1 2020, driven by service revenue[11](index=11&type=chunk) - Net loss significantly widened from **$(1,652) thousand** in Q1 2019 to **$(3,205) thousand** in Q1 2020, further exacerbated by **$3,344 thousand** in deemed dividends in 2020[11](index=11&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Stockholders' equity decreased from $13.2 million at January 1, 2020, to $11.3 million at March 31, 2020, primarily due to the net loss, partially offset by common stock issuances related to purchase agreements and convertible note conversions Condensed Consolidated Statements of Stockholders' Equity Highlights (Dollars in thousands) | Item | January 1, 2020 | March 31, 2020 | | :------------------------------------ | :-------------- | :------------- | | Total Stockholders' Equity | $13,205 | $11,285 | | Net loss | — | $(3,205) | | Conversion of convertible notes into common stock | — | $353 | | Issuance of common stock in connection with purchase agreements | — | $1,350 | | Stock-based compensation | — | $168 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The company continued to use cash in operating activities, with a net cash outflow of $1.6 million for the three months ended March 31, 2020. Financing activities provided $1.2 million, primarily from common stock issuance, partially offsetting the operational cash burn Condensed Consolidated Statements of Cash Flows Highlights (Three Months Ended March 31, Dollars in thousands) | Item | 2020 | 2019 | | :------------------------------------ | :----- | :----- | | Net cash used in operating activities | $(1,589) | $(1,879) | | Net cash used in investing activities | $(24) | $(3) | | Net cash flows provided by financing activities | $1,182 | $1,803 | | Net change in cash | $(431) | $(79) | | Cash at end of period | $417 | $302 | - Net cash used in operating activities decreased from **$(1,879) thousand** in Q1 2019 to **$(1,589) thousand** in Q1 2020[14](index=14&type=chunk) - Net cash provided by financing activities decreased from **$1,803 thousand** in Q1 2019 to **$1,182 thousand** in Q1 2020[14](index=14&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations and disclosures for the condensed consolidated financial statements, covering the company's business, significant accounting policies, debt, equity, fair value measurements, revenue recognition, and material subsequent events [1. BUSINESS DESCRIPTION](index=8&type=section&id=1.%20BUSINESS%20DESCRIPTION) Precipio, Inc. is a cancer diagnostics company focused on eliminating misdiagnosis through academic partnerships and proprietary technologies like IV-Cell, HemeScreen, and ICE-COLD-PCR. The company faces a going concern risk due to historical operating losses and negative working capital, but has taken steps to secure financing through a $10.0 million purchase agreement with Lincoln Park and a $50 million S-3 registration statement - Precipio, Inc. is a cancer diagnostics company providing diagnostic products and services to the oncology market, aiming to eradicate misdiagnosis[18](index=18&type=chunk) - The company operates a cancer diagnostic laboratory in New Haven, CT, and an R&D facility in Omaha, NE, focusing on technologies like IV-Cell, HemeScreen, and ICE-COLD-PCR (ICP)[18](index=18&type=chunk) - As of March 31, 2020, the company had a net loss of **$3.2 million**, negative working capital of **$5.0 million**, and net cash used in operating activities of **$1.6 million**, raising substantial doubt about its ability to continue as a going concern[19](index=19&type=chunk) - To address going concern, Precipio entered a **$10.0 million** common stock purchase agreement with Lincoln Park Capital Fund LLC (received **$0.3 million** post-Q1) and filed an S-3 registration statement for up to **$50 million** in securities[20](index=20&type=chunk)[21](index=21&type=chunk) [2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=10&type=section&id=2.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section outlines the basis of presentation for the unaudited condensed consolidated financial statements, discusses the adoption of ASU 2018-13 and ASU 2018-15 (which had no material impact), and notes upcoming pronouncements like ASU 2019-12 and ASU 2016-13. It also details the calculation of basic and diluted loss per share, identifying anti-dilutive securities - The condensed consolidated financial statements are presented in conformity with GAAP and are unaudited, reflecting normal recurring adjustments[23](index=23&type=chunk) - The company adopted ASU 2018-13 (Fair Value Measurement) and ASU 2018-15 (Intangibles—Goodwill and Other—Internal Use Software) on January 1, 2020, with no material impact[24](index=24&type=chunk)[25](index=25&type=chunk) - ASU 2019-12 (Income Taxes) and ASU 2016-13 (Credit Losses) are not yet adopted, with no material impact expected from ASU 2019-12[26](index=26&type=chunk)[27](index=27&type=chunk) Outstanding Securities Excluded from Diluted Loss Per Share (March 31, in shares) | Security Type | 2020 | 2019 | | :------------ | :------- | :------- | | Stock options | 802,113 | 498,262 | | Warrants | 907,601 | 917,563 | | Preferred stock | 117,500 | 20,888 | | Convertible notes | 4,032,281 | 1,663,330 | | **Total** | **5,859,495** | **3,100,043** | [3. LONG-TERM DEBT](index=12&type=section&id=3.%20LONG-TERM%20DEBT) Precipio's total long-term debt decreased from $519 thousand at December 31, 2019, to $374 thousand at March 31, 2020. This includes a DECD loan, financed insurance loans, and a settlement agreement, with the majority of the debt classified as current maturities Long-Term Debt (Dollars in Thousands) | Item | March 31, 2020 | December 31, 2019 | | :------------------------------------------ | :------------- | :---------------- | | Department of Economic and Community Development (DECD) | $242 | $249 | | Financed insurance loan | $131 | $260 | | September 2018 Settlement | $25 | $34 | | **Total long-term debt** | **$374** | **$519** | | Current portion of long-term debt | $(180) | $(321) | | **Long-term debt, net of current maturities** | **$194** | **$198** | - The DECD 2018 Loan is a ten-year loan due December 31, 2027, with monthly interest at **3.25%**[31](index=31&type=chunk) - Financed Insurance Loans outstanding balance decreased from **$0.3 million** at December 31, 2019, to **$0.1 million** at March 31, 2020[33](index=33&type=chunk) [4. CONVERTIBLE NOTES](index=13&type=section&id=4.%20CONVERTIBLE%20NOTES) The company's convertible notes, primarily Bridge Notes, saw significant activity, including an amendment in March 2020 that extended maturity and adjusted conversion prices, leading to an extinguishment of the notes and a $1.2 million loss. Various notes were converted into common stock during the periods presented Convertible Notes (Dollars in Thousands) | Item | March 31, 2020 | December 31, 2019 | | :------------------------------------------ | :------------- | :---------------- | | Convertible bridge notes | $1,613 | $1,938 | | Convertible bridge notes discount and debt issuance costs | $— | $(1,796) | | Convertible bridge notes premiums | $679 | $— | | **Total convertible notes** | **$2,292** | **$142** | | Current portion of convertible notes | $(2,292) | $(142) | | **Convertible notes, net of current maturities** | **$—** | **$—** | - The March 2020 Amendment to the April 2019 and May 2019 Bridge Notes extended maturity, amended the floor price from **$2.25** to **$0.40**, and extended guaranteed interest, resulting in a **$1.2 million** loss on extinguishment[44](index=44&type=chunk)[45](index=45&type=chunk) - During Q1 2020, **$0.3 million** of bridge notes (plus interest) were converted into **427,997 shares** of common stock, compared to **$2.1 million** converted into **1,019,430 shares** in Q1 2019[47](index=47&type=chunk) [5. ACCRUED EXPENSES OTHER CURRENT LIABILITIES](index=19&type=section&id=5.%20ACCRUED%20EXPENSES%20OTHER%20CURRENT%20LIABILITIES) Accrued expenses increased from $1,639 thousand at December 31, 2019, to $1,833 thousand at March 31, 2020, with increases in accrued compensation and interest Accrued Expenses (Dollars in thousands) | Item | March 31, 2020 | December 31, 2019 | | :------------------ | :------------- | :---------------- | | Accrued expenses | $1,289 | $1,268 | | Accrued compensation | $407 | $247 | | Accrued interest | $137 | $124 | | **Total** | **$1,833** | **$1,639** | - The company recorded no gain on settlement of liability in Q1 2020, compared to **$0.2 million** in Q1 2019[58](index=58&type=chunk) [6. COMMITMENTS AND CONTINGENCIES](index=19&type=section&id=6.%20COMMITMENTS%20AND%20CONTINGENCIES) The company is involved in legal proceedings, including a patent management service claim and a class-action lawsuit with a $1.95 million settlement awaiting final court approval. It also operates within a highly regulated healthcare industry, subject to various federal and state laws - A liability of less than **$0.1 million** is recorded for a patent management service claim by CPA Global[60](index=60&type=chunk) - A class-action lawsuit settlement of **$1.95 million** is awaiting final court approval, with funds held in escrow[61](index=61&type=chunk) - The healthcare industry is subject to numerous federal, state, and local laws and regulations, including those related to licensure, accreditation, and fraud and abuse[62](index=62&type=chunk) [7. LEASES](index=20&type=section&id=7.%20LEASES) Precipio adopted Topic 842 for leases, recognizing ROU assets and lease liabilities for operating and finance leases. As of March 31, 2020, total lease assets were $630 thousand and total lease liabilities were $623 thousand, with future minimum lease payments detailed for both lease types - The company adopted Topic 842 on January 1, 2019, recording initial ROU assets and operating lease liabilities of approximately **$750,000**[65](index=65&type=chunk) Lease Assets and Liabilities (Dollars in thousands) | Item | March 31, 2020 | December 31, 2019 | | :------------------------------------ | :------------- | :---------------- | | Operating lease right-of-use assets, net | $463 | $519 | | Finance lease assets (Property and equipment, net) | $167 | $184 | | **Total lease assets** | **$630** | **$703** | | Current maturities of operating lease liabilities | $212 | $209 | | Current maturities of finance lease liabilities | $36 | $52 | | Operating lease liabilities, less current maturities | $263 | $317 | | Finance lease liabilities, less current maturities | $112 | $119 | | **Total lease liabilities** | **$623** | **$697** | Weighted-Average Lease Terms and Discount Rates (March 31, 2020) | Item | Operating Leases | Finance Leases | | :-------------------------------- | :--------------- | :------------- | | Weighted-average remaining lease term (years) | 2.4 | 4.5 | | Weighted-average discount rate | 8.00% | 7.25% | [8. STOCKHOLDERS' EQUITY](index=22&type=section&id=8.%20STOCKHOLDERS%27%20EQUITY) Stockholders' equity details include common stock authorization, issuances from convertible note conversions and purchase agreements (LP Purchase Agreement and LP 2020 Purchase Agreement), and preferred stock. The March 2020 Amendment triggered down round features on Series B Preferred Stock and certain warrants, resulting in $3.344 million in deemed dividends - The company issued **427,997 shares** of common stock in Q1 2020 (vs. **1,248,115** in Q1 2019) from convertible note conversions[74](index=74&type=chunk) - Under the LP Purchase Agreement, the company received **$9.4 million** from common stock sales to Lincoln Park through April 6, 2020, including **$1.3 million** in Q1 2020[80](index=80&type=chunk) - A new LP 2020 Purchase Agreement was entered into on March 26, 2020, allowing Lincoln Park to purchase up to **$10.0 million** of common stock over 24 months, with **$0.3 million** received post-Q1[81](index=81&type=chunk)[85](index=85&type=chunk) - The March 2020 Amendment triggered a down round feature on Series B Preferred Stock, adjusting the conversion price from **$2.25** to **$0.40** per share, and resulting in a **$3.333 million** deemed dividend[89](index=89&type=chunk)[115](index=115&type=chunk) - Down round features on August 2017 Offering Warrants, Note Conversion Warrants, and Convertible Promissory Note Warrants also triggered deemed dividends totaling **$11 thousand**[99](index=99&type=chunk)[101](index=101&type=chunk)[103](index=103&type=chunk)[115](index=115&type=chunk) [9. FAIR VALUE](index=31&type=section&id=9.%20FAIR%20VALUE) The company measures certain financial instruments, such as common stock warrant liabilities and derivative liabilities, at fair value using a three-level hierarchy. Significant revaluation gains were recognized on warrant liabilities, while derivative liabilities saw no change in fair value in Q1 2020 - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[117](index=117&type=chunk) - Common stock warrant liabilities are recorded at fair value, with changes recognized in earnings. The 2016 Warrant Liability and Bridge Note Warrant Liabilities are Level 3 instruments[118](index=118&type=chunk)[119](index=119&type=chunk)[123](index=123&type=chunk) Change in Fair Value of Warrant Liabilities (Three Months Ended March 31, Dollars in Thousands) | Item | 2020 | 2019 | | :------------------------------------ | :----- | :----- | | Beginning balance at January 1 | $1,338 | $1,132 | | Revaluation recognized in earnings (gain) | $(936) | $(240) | | **Balance at March 31** | **$402** | **$892** | - Derivative liabilities related to convertible notes (Bridge Notes Redemption Feature, Conversion Option) are bifurcated and remeasured at each reporting date. There was no change in fair value in Q1 2020, compared to a **$(23) thousand** gain in Q1 2019[126](index=126&type=chunk)[127](index=127&type=chunk)[128](index=128&type=chunk)[129](index=129&type=chunk) [10. EQUITY INCENTIVE PLAN](index=34&type=section&id=10.%20EQUITY%20INCENTIVE%20PLAN) The 2017 Stock Option and Incentive Plan was amended to increase authorized shares and include an "evergreen" provision. During Q1 2020, 325,050 stock options were granted, and the company recognized $0.2 million in stock-based compensation expense - The 2017 Stock Option and Incentive Plan was amended to increase authorized shares by **359,300** and add an "evergreen" provision, automatically increasing shares by **5%** of outstanding common stock annually[131](index=131&type=chunk) Stock Option Activity (Three Months Ended March 31, 2020) | Item | Number of Options | Weighted Average Exercise Price | | :-------------------------- | :---------------- | :------------------------------ | | Outstanding at January 1, 2020 | 490,330 | $8.30 | | Granted | 325,050 | $2.09 | | Forfeited | (13,267) | $5.43 | | **Outstanding at March 31, 2020** | **802,113** | **$5.85** | | Exercisable at March 31, 2020 | 244,357 | $11.06 | - Stock-based compensation expense was **$0.2 million** for both Q1 2020 and Q1 2019[134](index=134&type=chunk) [11. SALES SERVICE REVENUE, NET AND ACCOUNTS RECEIVABLE](index=35&type=section&id=11.%20SALES%20SERVICE%20REVENUE%2C%20NET%20AND%20ACCOUNTS%20RECEIVABLE) Precipio recognizes revenue under ASC 606 for diagnostic testing (point in time), clinical research grants, and biomarker testing (over time). Total service revenue, net, increased to $1,458 thousand in Q1 2020 from $910 thousand in Q1 2019. Accounts receivable, net, increased to $883 thousand at March 31, 2020, with a corresponding increase in the allowance for doubtful accounts - Revenue from diagnostic testing is recognized at a point in time upon delivery of the patient's laboratory report[140](index=140&type=chunk) - Revenue from clinical research grants and biomarker testing is recognized over time using an "effort based" method[141](index=141&type=chunk)[142](index=142&type=chunk) Disaggregation of Service Revenue, Net (Three Months Ended March 31, Dollars in thousands) | Payer Class | 2020 | 2019 | | :------------------ | :----- | :----- | | Medicaid | $9 | $3 | | Medicare | $524 | $394 | | Self-pay | $50 | $4 | | Third party payers | $517 | $356 | | Contract diagnostics | $358 | $153 | | **Total Service Revenue, Net** | **$1,458** | **$910** | Accounts Receivable, Net (Dollars in thousands) | Item | March 31, 2020 | December 31, 2019 | | :-------------------------- | :------------- | :---------------- | | Medicaid | $31 | $107 | | Medicare | $1,692 | $814 | | Self-pay | $65 | $88 | | Third party payers | $1,710 | $2,203 | | Contract diagnostic services | $327 | $36 | | Less allowance for doubtful accounts | $(2,942) | $(2,674) | | **Accounts receivable, net** | **$883** | **$574** | [12. SUBSEQUENT EVENTS](index=40&type=section&id=12.%20SUBSEQUENT%20EVENTS) Subsequent to March 31, 2020, Precipio secured a $787,200 Paycheck Protection Program (PPP) loan, received a Nasdaq delisting notice for failing to meet the $1.00 minimum bid price requirement (with compliance period tolled until July 1, 2020), and formed a joint venture, Precipio Oncometrix LLC, with Poplar Healthcare PLLC - On April 23, 2020, the company received an unsecured **$787,200** loan under the Paycheck Protection Program (PPP) with a **1.00%** interest rate and deferred payments for six months, with potential for forgiveness[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk) - On April 29, 2020, Nasdaq issued a delisting notice due to the common stock's closing bid price falling below **$1.00** for 30 consecutive business days. The compliance period is tolled until July 1, 2020, with a deadline of December 28, 2020, to regain compliance[165](index=165&type=chunk)[166](index=166&type=chunk)[167](index=167&type=chunk) - In April 2020, Precipio formed a joint venture, Precipio Oncometrix LLC (POC), with Poplar Healthcare PLLC, with Precipio SPV holding a **49%** ownership interest, to provide oncology services[171](index=171&type=chunk)[172](index=172&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=43&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition, Q1 2020 operations, going concern, COVID-19 impact, liquidity, and capital resources [Forward-Looking Information](index=43&type=section&id=Forward-Looking%20Information) This section contains forward-looking statements based on management's current views, assumptions, or beliefs of future events and financial performance - The report contains forward-looking statements based on management's current views, assumptions, or beliefs of future events and financial performance[174](index=174&type=chunk) - Actual financial results may vary materially due to factors such as the impact of COVID-19, revenue, operating expenses, funding, economic circumstances, and regulatory factors[174](index=174&type=chunk) - The company expressly disclaims any obligation to update or revise forward-looking statements, except as required by law[176](index=176&type=chunk) [Overview](index=44&type=section&id=Overview) Precipio, Inc. is a cancer diagnostics company dedicated to eradicating misdiagnosis through its platform, academic partnerships, and proprietary technologies (IV-Cell, HemeScreen, ICE-COLD-PCR). It operates diagnostic and R&D facilities in New Haven and Omaha - Precipio is a cancer diagnostics company focused on eradicating misdiagnosis using academic expertise and technologies like IV-Cell, HemeScreen, and ICE-COLD-PCR (ICP)[179](index=179&type=chunk) - The company operates a cancer diagnostic laboratory in New Haven, Connecticut, and a research and development facility in Omaha, Nebraska, which is also CLIA and CAP certified[179](index=179&type=chunk) [Going Concern](index=44&type=section&id=Going%20Concern) The company's ability to continue as a going concern is in substantial doubt due to recurring operating losses, negative working capital, and cash usage. Despite securing a $10.0 million purchase agreement with Lincoln Park and filing an S-3 registration for up to $50 million, there's no assurance these initiatives will fully resolve the uncertainty - The company has incurred substantial operating losses and used cash in operating activities for several years, with a net loss of **$3.2 million**, negative working capital of **$5.0 million**, and **$1.6 million** net cash used in operations as of March 31, 2020[180](index=180&type=chunk) - Substantial doubt exists about the company's ability to continue as a going concern for the next twelve months[183](index=183&type=chunk) - Financing efforts include a **$10.0 million** common stock purchase agreement with Lincoln Park (with **$0.3 million** already received post-Q1) and an effective S-3 registration statement for up to **$50 million** in securities[181](index=181&type=chunk) [Outlook - COVID-19 related](index=46&type=section&id=Outlook%20-%20COVID-19%20related) The COVID-19 pandemic has caused significant business disruption, leading to business interruptions ranging from 30% to 85% in certain urban markets. The full impact on the company's operational and financial performance remains uncertain, with management actively monitoring and adapting operations - The COVID-19 outbreak has caused significant business disruption, with its impact on operational and financial performance being uncertain and unpredictable[184](index=184&type=chunk) - The company has experienced business interruptions ranging from **30%** to **85%** in certain urban markets[222](index=222&type=chunk) - Management is actively monitoring the situation, protecting employees, engaging customers, and employing remote work where possible[223](index=223&type=chunk) [Results of Operations for the Three Months Ended March 31, 2020 and 2019](index=46&type=section&id=Results%20of%20Operations%20for%20the%20Three%20Months%20Ended%20March%2031%2C%202020%20and%202019) For Q1 2020, net sales increased by 71% to $1.2 million, driven by a 90% increase in patient diagnostic cases and higher contract diagnostics revenue. Gross profit improved, but operating expenses rose due to sales and marketing. A significant net expense of $1.0 million was recorded, primarily from a $1.2 million loss on extinguishment of convertible notes and increased interest expense, partially offset by warrant revaluation gains Key Financial Results (Three Months Ended March 31, Dollars in Thousands) | Item | 2020 | 2019 | Change ($) | Change (%) | | :------------------------------------ | :----- | :----- | :--------- | :--------- | | Net Sales | $1,216 | $713 | $503 | 71% | | Gross Profit | $125 | $38 | $87 | 229% | | Gross Margin | 10% | 5% | 5% | 100% | | Operating Expenses | $2,328 | $2,097 | $231 | 11% | | Other Income (Expense), net | $(1,002) | $407 | $(1,409) | -346% | - Service revenue increased due to a **90%** increase in patient diagnostic cases (**683 cases** in Q1 2020 vs. **360** in Q1 2019) and a **$0.2 million** increase in contract diagnostics revenue[185](index=185&type=chunk) - Other expense, net, of **$1.0 million** in Q1 2020 included a **$1.2 million** loss on extinguishment of convertible notes and **$0.7 million** in interest expense, partially offset by **$0.9 million** income from warrant revaluations[190](index=190&type=chunk) [Liquidity and Capital Resources](index=47&type=section&id=Liquidity%20and%20Capital%20Resources) The company's working capital remained negative, decreasing to $(5.0) million at March 31, 2020. Cash decreased by $0.4 million, with operating activities using $1.6 million, partially offset by $1.2 million provided by financing activities, primarily from common stock issuance Working Capital Position (Dollars in Thousands) | Item | March 31, 2020 | December 31, 2019 | Change ($) | | :------------------------------------ | :------------- | :---------------- | :--------- | | Current assets | $1,692 | $1,878 | $(186) | | Current liabilities | $6,739 | $4,334 | $2,405 | | **Working capital** | **$(5,047)** | **$(2,456)** | **$(2,591)** | - Cash decreased by **$0.4 million** in Q1 2020, compared to a **$0.1 million** decrease in Q1 2019[192](index=192&type=chunk) - Net cash used in operating activities was **$1.6 million** in Q1 2020, driven by net loss and increased accounts receivable, partially offset by non-cash adjustments[193](index=193&type=chunk) - Net cash provided by financing activities was **$1.2 million** in Q1 2020, primarily from **$1.4 million** in common stock issuance, offset by debt payments[195](index=195&type=chunk) [Off-Balance Sheet Arrangements](index=48&type=section&id=Off-Balance%20Sheet%20Arrangements) The company reported no material off-balance sheet arrangements as of March 31, 2020, or December 31, 2019 - The company did not have any off-balance sheet arrangements that have or are reasonably likely to have a material effect on its financial condition or results of operations[196](index=196&type=chunk) [Contractual Obligations and Commitments](index=48&type=section&id=Contractual%20Obligations%20and%20Commitments) No significant changes to contractual obligations and commitments occurred during the three months ended March 31, 2020, compared to those disclosed in the Annual Report on Form 10-K for 2019 - No significant changes to contractual obligations and commitments occurred during the three months ended March 31, 2020, as compared to the Annual Report on Form 10-K for 2019[197](index=197&type=chunk) [Critical Accounting Policies and Estimates](index=48&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The company's critical accounting policies and estimates, which involve significant management judgments, are discussed in detail in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019 - Critical accounting policies and estimates, involving significant management judgments, are discussed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2019[198](index=198&type=chunk) [Recently Issued Accounting Pronouncements](index=48&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) Additional information regarding recently issued accounting pronouncements can be found in Note 2 to the unaudited condensed consolidated financial statements - Information on recently issued accounting pronouncements is provided in Note 2 to the unaudited condensed consolidated financial statements[199](index=199&type=chunk) [Impact of Inflation](index=48&type=section&id=Impact%20of%20Inflation) The company does not believe that price inflation or deflation had a material adverse effect on its financial condition or results of operations during the periods presented - Price inflation or deflation did not have a material adverse effect on the company's financial condition or results of operations during the periods presented[200](index=200&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=48&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Precipio, Inc. is exempt from providing quantitative and qualitative disclosures about market risk - Precipio, Inc. is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[201](index=201&type=chunk) [Item 4. Controls and Procedures](index=48&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of March 31, 2020, concluding they were effective at a reasonable assurance level. No material changes in internal control over financial reporting occurred during the quarter - Management concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2020[203](index=203&type=chunk) - There have been no material changes in internal control over financial reporting during the three months ended March 31, 2020[204](index=204&type=chunk) PART II. Other Information This section provides other required information, including legal proceedings, updated risk factors, and report exhibits [Item 1. Legal Proceedings](index=51&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in legal proceedings, including a patent management service claim and a class-action lawsuit with a $1.95 million settlement awaiting final court approval. The healthcare industry's legal and regulatory environment also poses ongoing compliance considerations - A claim by CPA Global for approximately **$0.2 million** for patent management services is outstanding, with less than **$0.1 million** recorded as a liability[206](index=206&type=chunk) - A class-action lawsuit settlement of **$1.95 million** is awaiting final court approval, with funds held in escrow[207](index=207&type=chunk) - The healthcare industry is subject to extensive federal, state, and local laws and regulations, including those related to fraud and abuse, which could result in significant fines or program expulsion for violations[208](index=208&type=chunk)[209](index=209&type=chunk) [Item 1A. Risk Factors](index=51&type=section&id=Item%201A.%20Risk%20Factors) This section updates the company's risk factors, emphasizing its history of losses and future profitability uncertainty, the need for substantial additional capital, the risk of NASDAQ delisting due to minimum bid price non-compliance, and the significant adverse impacts of the COVID-19 pandemic and the associated Paycheck Protection Program loan - The company has incurred losses since inception and expects to continue incurring losses, with no certainty of achieving or sustaining profitability[211](index=211&type=chunk)[212](index=212&type=chunk) - Substantial additional capital is needed to commercialize diagnostic technology, and failure to obtain funding could delay or cease operations[214](index=214&type=chunk) - The company received a Nasdaq delisting notice for failing to meet the **$1.00** minimum bid price requirement, with a compliance deadline of December 28, 2020[216](index=216&type=chunk)[217](index=217&type=chunk) - The COVID-19 pandemic has caused significant business disruption and uncertainty, with experienced business interruptions ranging from **30%** to **85%** in urban markets[220](index=220&type=chunk)[222](index=222&type=chunk) - Risks related to the Paycheck Protection Program (PPP) loan include uncertainty of forgiveness and the potential adverse effect on future cash flows if repayment is required[224](index=224&type=chunk)[226](index=226&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=57&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds to report[227](index=227&type=chunk) [Item 3. Defaults Upon Senior Securities](index=57&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the company for the reporting period - This item is not applicable[228](index=228&type=chunk) [Item 4. Mine Safety Disclosures](index=57&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company for the reporting period - This item is not applicable[229](index=229&type=chunk) [Item 5. Other Information](index=57&type=section&id=Item%205.%20Other%20Information) There is no other information to report under this item - No other information to report[230](index=230&type=chunk) [Item 6. Exhibits](index=57&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer, and various XBRL taxonomy documents - Exhibits include certifications (31.1, 31.2, 32.1, 32.2) and XBRL Instance, Schema, Calculation, Definition, Label, and Presentation Linkbase Documents (101.INS to 101.PRE)[232](index=232&type=chunk) [Signatures](index=59&type=section&id=Signatures) The report is duly signed on behalf of Precipio, Inc. by its Chief Executive Officer, Ilan Danieli, and Chief Financial Officer, Carl Iberger, on May 14, 2020 - The report is signed by Ilan Danieli, Chief Executive Officer, and Carl Iberger, Chief Financial Officer, on May 14, 2020[237](index=237&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001‑36439 PRECIPIO, INC. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorp ...

Financial Data and Key Metrics Changes - The company's Q3 revenue was lower than the prior quarter, with reported revenues year-to-date at $2.4 million, reflecting a 12% increase compared to the same period in 2018 [17][18] - The net loss for Q3 was $2.4 million, an improvement from a net loss of $4.1 million in the equivalent period in 2018, primarily due to a $1.6 million write-off associated with Goodwill [23] Business Line Data and Key Metrics Changes - Pathology services revenue continued to grow, but pharma revenues were virtually nonexistent in Q3 due to project phases that did not generate business [11] - October case volume increased by almost 20% above the Q3 average, indicating a rebound in pathology volume [11] Market Data and Key Metrics Changes - The company experienced a summer slowdown, particularly in August, leading to a sharp decline in pathology volume due to customer vacations [11] - Ordering patterns have rebounded in Q4, suggesting a recovery in demand [18] Company Strategy and Development Direction - The company aims to diversify its revenue by adding a third revenue line from products and services, which are less susceptible to reimbursement issues [12] - The introduction of IV-cell and HemeScreen products is expected to generate revenue for the first time in Q4, with significant growth potential anticipated [14] Management's Comments on Operating Environment and Future Outlook - Management expressed disappointment with Q3 results but emphasized that the decline is temporary and not indicative of a long-term trend [15] - The company is committed to growth and fiscal responsibility, aiming for cash flow breakeven during 2020 [30][26] Other Important Information - Cash on hand as of September 30 was $1.7 million, an increase of $1.3 million from year-end December 2018 [25] - The company has successfully reduced spending in certain areas, enabling a focus on growth initiatives [24] Q&A Session Summary Question: What are the expectations for future revenue growth? - Management projected a 15% increase in revenue but fell short in September due to decreased patient referrals [18] Question: How is the company managing its operating expenses? - The company is focusing on cost reductions and efficiencies through outsourcing and external systems, which have yielded both recurring and non-recurring savings [21] Question: What is the outlook for the new product lines? - Management is optimistic about the IV-cell and HemeScreen products, with expectations for significant revenue contributions in 2020 [22]