Precipio(PRPO) - 2022 Q3 - Quarterly Report

PART I. Financial Information Condensed Consolidated Financial Statements Precipio, Inc.'s unaudited financial statements as of September 30, 2022, reflect decreased assets and equity, an increased net loss, and significant going concern uncertainty Condensed Consolidated Balance Sheets Precipio's balance sheet as of September 30, 2022, shows total assets decreased to $23.5 million and stockholders' equity fell to $18.3 million Condensed Consolidated Balance Sheets (in thousands) | | September 30, 2022 (unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $7,418 | $13,478 | | Total Assets | $23,547 | $30,439 | | Total Current Liabilities | $4,410 | $4,213 | | Total Liabilities | $5,293 | $5,835 | | Total Stockholders' Equity | $18,254 | $24,604 | | Total Liabilities and Stockholders' Equity | $23,547 | $30,439 | Condensed Consolidated Statements of Operations Net sales remained stable for Q3 2022, but the net loss widened to $3.2 million, while nine-month net sales increased to $7.0 million with a significant loss of $9.9 million Statement of Operations Highlights (in thousands, except per share data) | | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $2,215 | $2,246 | $7,021 | $6,414 | | Gross Profit | $436 | $528 | $1,912 | $1,747 | | Operating Loss | $(3,229) | $(2,439) | $(10,471) | $(6,708) | | Net Loss Attributable to Precipio, Inc. | $(3,179) | $(1,860) | $(9,913) | $(6,325) | | Basic and Diluted Loss Per Share | $(0.14) | $(0.08) | $(0.44) | $(0.31) | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2022, net cash used in operating activities increased to $6.2 million, with financing activities using $0.1 million, resulting in a $6.5 million net cash decrease Cash Flow Summary (in thousands) | | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(6,221) | $(5,136) | | Net cash used in investing activities | $(225) | $(624) | | Net cash flows (used in) provided by financing activities | $(78) | $16,327 | | Net Change in Cash | $(6,524) | $10,567 | | Cash at End of Period | $5,144 | $13,223 | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail the company's cancer diagnostics business, disclose substantial doubt about its going concern ability due to losses, and mention a Nasdaq delisting notice - The company is a healthcare solutions company focused on addressing cancer misdiagnoses through diagnostic products, reagents, and services. It operates CLIA laboratories in New Haven, CT, and Omaha, NE[19][20] - There is substantial doubt about the Company's ability to continue as a going concern. For the nine months ended Sep 30, 2022, the company had a net loss of $9.9 million and used $6.2 million in cash from operations. Its continuation depends on generating more revenue and raising additional capital[23][25] - Subsequent to the quarter end, on October 28, 2022, the company received a delisting notice from Nasdaq for failing to maintain a minimum bid price of $1.00 per share. The company has until April 26, 2023, to regain compliance[130][131] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 9% increase in net sales for the first nine months of 2022, offset by rising operating expenses and a wider operating loss, reiterating the going concern risk and reliance on ATM sales - Management reiterates that there is substantial doubt about the company's ability to continue as a going concern due to a history of operating losses and cash usage. The company is relying on its ATM Sales Agreement with AGP, which has $6.4 million available for future sales, to fund operations[143][144] - On September 1, 2022, the company terminated its license agreement with Dana-Farber Cancer Institute for the ICE COLD PCR (ICP) technology. Management does not believe this will have a material impact on the business[142] Results of Operations Comparison (in thousands) | | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $7,021 | $6,414 | $607 | 9% | | Gross Profit | $1,912 | $1,747 | $165 | 9% | | Operating Expenses | $12,383 | $8,455 | $3,928 | 46% | | Operating Loss | $(10,471) | $(6,708) | $(3,763) | 56% | Working Capital (in thousands) | | September 30, 2022 | December 31, 2021 | Change | | :--- | :--- | :--- | :--- | | Current Assets | $7,418 | $13,478 | $(6,060) | | Current Liabilities | $4,410 | $4,213 | $197 | | Working Capital | $3,008 | $9,265 | $(6,257) | Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Precipio, Inc. is exempt from providing quantitative and qualitative disclosures about market risk - As a smaller reporting company, Precipio, Inc. is not required to provide quantitative and qualitative disclosures about market risk[176] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control over financial reporting - The CEO and Interim CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2022[177] - There were no changes in internal control over financial reporting during the third quarter of 2022 that have materially affected, or are reasonably likely to materially affect, these controls[178] PART II. Other Information Legal Proceedings The company operates in a highly regulated healthcare industry, is subject to fraud and abuse laws, and faces an outstanding claim from CPA Global for patent management services - The company is subject to numerous laws and regulations in the healthcare industry, and violations could result in significant fines and penalties. Management believes it is currently in compliance[180][181] - CPA Global has claimed approximately $0.2 million for patent maintenance services. A liability of less than $0.1 million is recorded on the balance sheet for this matter[184] Risk Factors Key risks include a history of losses, the critical need for additional capital, Nasdaq delisting risk due to non-compliance, and ongoing challenges from inflation and market volatility - History of Losses: The company has incurred losses since inception, with a net loss of $9.9 million for the nine months ended Sep 30, 2022, and expects to incur losses for the foreseeable future[186] - Need for Additional Capital: The company may need to raise substantial additional capital to commercialize its technology and fund operations. Failure to do so could force it to delay or cease operations[190] - Nasdaq Delisting Risk: The company is not in compliance with Nasdaq's minimum bid price rule. Failure to regain compliance by the deadline could result in delisting, which would negatively impact the stock's liquidity and the company's ability to raise capital[191][194] - Inflation Risk: Rising inflation may adversely affect the company's business and financial condition by increasing its overall cost structure[205] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the reporting period - None[207] Exhibits The report includes exhibits such as CEO and CFO certifications under Sarbanes-Oxley Act sections 302 and 906, and Inline XBRL data files - The exhibits filed include certifications from the Principal Executive Officer and Principal Financial Officer, as well as Inline XBRL documents[212]