UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, ~~2021~~2022

	OR

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

Commission File Number: 001-36439

PRECIPIO, INC.

(Exact name of registrant as specified in its charter)


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

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

(203) 787-7888

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X ☒ No◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes X☒ No◻

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

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

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

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

As of November ~~10, 2021,~~8, 2022, the number of shares of common stock outstanding was ~~22,708,342.~~22,820,260.

Table of Contents

PRECIPIO, INC. AND SUBSIDIARIES

INDEX

		Page No.

PART I.	Financial Information	3

Item 1.	Condensed Consolidated Financial Statements	3

	Condensed Consolidated Balance Sheets at September 30, ~~2021~~2022 (unaudited) and December 31, ~~2020~~2021	3

	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021 (unaudited)	4

	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021 (unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021 (unaudited)	7

	Notes to the Unaudited Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3228

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3834

Item 4.	Controls and Procedures	3834

PART II.	Other Information	4035

Item 1.	Legal Proceedings	4035

Item 1A.	Risk Factors	4035

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4239

Item 3.	Defaults Upon Senior Securities	4239

Item 4.	Mine Safety Disclosures	4239

Item 5.	Other Information	4239

Item 6.	Exhibits	4239

Signatures		4340

Table of Contents

PART 1. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

PRECIPIO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)


	September 30, 2021				September 30, 2022
	(unaudited)		December 31, 2020		(unaudited)		December 31, 2021
ASSETS
CURRENT ASSETS:
Cash	$	13,223	$	2,656	$	5,144	$	11,668
Accounts receivable, net		570		874		955		697
Inventories		680		350		663		564
Other current assets		617		324		656		549
Total current assets		15,090		4,204		7,418		13,478

PROPERTY AND EQUIPMENT, NET		813		277		885		836

OTHER ASSETS:
Finance lease right-of-use assets, net		487		204		284		371
Operating lease right-of-use assets, net		144		306		811		858
Intangibles, net		14,955		15,667		14,005		14,717
Other assets		116		55		144		179
Total assets	$	31,605	$	20,713	$	23,547	$	30,439
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt, less debt issuance costs	$	26	$	648	$	367	$	26
Current maturities of finance lease liabilities		244		48		168		222
Current maturities of operating lease liabilities		93		225		194		166
Accounts payable		1,572		1,693		2,132		1,863
Accrued expenses		1,565		2,036		1,536		1,918
Deferred revenue		148		6		13		18
Total current liabilities		3,648		4,656		4,410		4,213
LONG TERM LIABILITIES:
Long-term debt, less current maturities and debt issuance costs		167		362		141		160
Finance lease liabilities, less current maturities		187		116		89		159
Operating lease liabilities, less current maturities		57		92		625		697
Common stock warrant liabilities		1,629		1,325		28		606
Total liabilities		5,688		6,551		5,293		5,835
COMMITMENTS AND CONTINGENCIES (Note 6)
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS’ EQUITY:
Preferred stock - $0.01 par value, 15,000,000 shares authorized at September 30, 2021 and December 31, 2020, 47 shares issued and outstanding at September 30, 2021 and December 31, 2020, liquidation preference of $331 at September 30, 2021		—		—
Common stock, $0.01 par value, 150,000,000 shares authorized at September 30, 2021 and December 31, 2020, 22,708,292 and 17,576,916 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively		227		176
Preferred stock - $0.01 par value, 15,000,000 shares authorized at September 30, 2022 and December 31, 2021, 47 shares issued and outstanding at September 30, 2022 and December 31, 2021, liquidation preference of $94 at September 30, 2022						—		—
Common stock, $0.01 par value, 150,000,000 shares authorized at September 30, 2022 and December 31, 2021, 22,820,260 and 22,708,442 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively						228		227
Additional paid-in capital		103,542		85,523		107,975		104,431
Accumulated deficit		(77,889)		(71,564)		(90,007)		(80,094)
Total Precipio, Inc. stockholders’ equity		25,880		14,135		18,196		24,564
Noncontrolling interest in joint venture		37		27		58		40
Total stockholders’ equity		25,917		14,162		18,254		24,604
Total liabilities and stockholders’ equity	$	31,605	$	20,713	$	23,547	$	30,439

See notes to unaudited condensed consolidated financial statements.

Table of Contents

PRECIPIO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020		2022		2021		2022		2021
SALES:
Service revenue, net	$	1,998	$	1,998	$	5,980	$	5,072	$	2,060	$	1,998	$	6,291	$	5,980
Other revenue		141		51		514		104		235		141		977		514
Revenue, net of contractual allowances and adjustments		2,139		2,049		6,494		5,176		2,295		2,139		7,268		6,494
Adjustment for allowance for doubtful accounts		107		(422)		(80)		(1,025)		(80)		107		(247)		(80)
Net sales		2,246		1,627		6,414		4,151		2,215		2,246		7,021		6,414
COST OF SALES:
Cost of service revenue		1,450		1,244		4,121		3,472		1,512		1,450		4,414		4,121
Cost of other revenue		268		6		546		6		267		268		695		546
Total cost of sales		1,718		1,250		4,667		3,478		1,779		1,718		5,109		4,667
Gross profit		528		377		1,747		673		436		528		1,912		1,747
OPERATING EXPENSES:
Operating expenses		2,967		2,809		8,455		7,567		3,665		2,967		12,383		8,455
OPERATING LOSS		(2,439)		(2,432)		(6,708)		(6,894)		(3,229)		(2,439)		(10,471)		(6,708)
OTHER INCOME (EXPENSE):
Interest expense, net		(6)		(3)		(14)		(470)		(6)		(6)		(6)		(14)
Warrant revaluation		578		(857)		(434)		(293)		59		578		578		(434)
Gain on settlement of liability		13		–		47		—		3		13		4		47
Gain on forgiveness of Paycheck Protection Program loan		–		–		794		—		–		–		—		794
Loss on extinguishment of convertible notes		–		–		—		(1,225)
Other income		–		–		—		153
Total other income (expense)		585		(860)		393		(1,835)		56		585		576		393
LOSS BEFORE INCOME TAXES		(1,854)		(3,292)		(6,315)		(8,729)		(3,173)		(1,854)		(9,895)		(6,315)
INCOME TAX EXPENSE		–		–		—		—		–		–		—		—
NET LOSS		(1,854)		(3,292)		(6,315)		(8,729)		(3,173)		(1,854)		(9,895)		(6,315)

Less: Net income attributable to noncontrolling interest in joint venture		(6)		(10)		(10)		(27)		(6)		(6)		(18)		(10)
Deemed dividends related to beneficial conversion feature of preferred stock and fair value of warrant down round features		–		–		—		(3,344)
NET LOSS ATTRIBUTABLE TO PRECIPIO, INC. COMMON STOCKHOLDERS	$	(1,860)	$	(3,302)	$	(6,325)	$	(12,100)	$	(3,179)	$	(1,860)	$	(9,913)	$	(6,325)

BASIC AND DILUTED LOSS PER COMMON SHARE	$	(0.08)	$	(0.21)	$	(0.31)	$	(1.01)	$	(0.14)	$	(0.08)	$	(0.44)	$	(0.31)
BASIC AND DILUTED WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING		22,708,034		16,007,025		20,555,588		11,925,642		22,766,890		22,708,034		22,728,275		20,555,588

See notes to unaudited condensed consolidated financial statements.

Table of Contents

PRECIPIO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars in thousands)

(unaudited)


	For the Three Months Ended September 30, 2021																For the Three Months Ended September 30, 2022
	Preferred Stock			Common Stock			Additional						Noncontrolling				Preferred Stock			Common Stock			Additional						Noncontrolling
	Outstanding	Par		Outstanding	Par		Paid-in		Accumulated		Total		Interest in				Outstanding	Par		Outstanding	Par		Paid-in		Accumulated		Total		Interest in
	Shares	Value		Shares	Value		Capital		Deficit		Precipio, Inc.		Joint Venture		Total		Shares	Value		Shares	Value		Capital		Deficit		Precipio, Inc.		Joint Venture		Total
Balance, July 1, 2021	47	$	—	22,707,063	$	227	$	103,029	$	(76,029)	$	27,227	$	31	$	27,258
Balance, July 1, 2022																	47	$	—	22,708,708	$	227	$	107,114	$	(86,828)	$	20,513	$	52	$	20,565
Net (loss) income	—		—	—		—		—		(1,860)		(1,860)		6		(1,854)	—		—	—		—		—		(3,179)		(3,179)		6		(3,173)
Proceeds upon issuance of common stock from exercise of stock options	—		—	1,229		—		3		—		3		—		3
Issuance of common stock in connection with at the market offering, net of issuance costs																	—		—	85,023		1		128		—		129		—		129
Proceeds upon issuance of common stock from exercise of warrants																	—		—	26,529		—		11		—		11		—		11
Stock-based compensation	—		—	—		—		510		—		510		—		510	—		—	—		—		722		—		722		—		722
Balance, September 30, 2021	47	$	—	22,708,292	$	227	$	103,542	$	(77,889)	$	25,880	$	37	$	25,917
Balance, September 30, 2022																	47	$	—	22,820,260	$	228	$	107,975	$	(90,007)	$	18,196	$	58	$	18,254

	For the Nine Months Ended September 30, 2021																For the Nine Months Ended September 30, 2022
	Preferred Stock			Common Stock			Additional						Noncontrolling				Preferred Stock			Common Stock			Additional						Noncontrolling
	Outstanding	Par		Outstanding	Par		Paid-in		Accumulated		Total		Interest in				Outstanding	Par		Outstanding	Par		Paid-in		Accumulated		Total		Interest in
	Shares	Value		Shares	Value		Capital		Deficit		Precipio, Inc.		Joint Venture		Total		Shares	Value		Shares	Value		Capital		Deficit		Precipio, Inc.		Joint Venture		Total
Balance, January 1, 2021	47	$	—	17,576,916	$	176	$	85,523	$	(71,564)	$	14,135	$	27	$	14,162
Balance, January 1, 2022																	47	$	—	22,708,442	$	227	$	104,431	$	(80,094)	$	24,564	$	40	$	24,604
Net (loss) income	—		—	—		—		—		(6,325)		(6,325)		10		(6,315)	—		—	—		—		—		(9,913)		(9,913)		18		(9,895)
Issuance of common stock in connection with purchase agreements	—		—	500,000		5		1,255		—		1,260		—		1,260
Issuance of common stock in connection with at the market offering, net of issuance costs	—		—	4,501,000		45		14,902		—		14,947		—		14,947	—		—	85,023		1		128		—		129		—		129
Proceeds upon issuance of common stock from exercise of warrants	—		—	74,000		1		399		—		400		—		400	—		—	26,795		—		11		—		11		—		11
Proceeds upon issuance of common stock from exercise of stock options	—		—	1,229		—		3		—		3		—		3
Issuance of common stock for consulting services	—		—	55,147		—		150		—		150		—		150
Stock-based compensation	—		—	—		—		1,310		—		1,310		—		1,310	—		—	—		—		3,405		—		3,405		—		3,405
Balance, September 30, 2021	47	$	—	22,708,292	$	227	$	103,542	$	(77,889)	$	25,880	$	37	$	25,917
Balance, September 30, 2022																	47	$	—	22,820,260	$	228	$	107,975	$	(90,007)	$	18,196	$	58	$	18,254

See notes to unaudited condensed consolidated financial statements

Table of Contents

PRECIPIO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY ~~- CONTINUED~~

(Dollars in thousands)

(unaudited)

For the Three Months Ended September 30, 2020

Preferred Stock

Common Stock

Additional

Noncontrolling

Outstanding

Par

Outstanding

Par

Paid-in

Accumulated

Total

Interest in


Shares

Value

Shares

Value

Capital

Deficit

Precipio, Inc.

Joint Venture

Total
Balance, July 1, 2020

47

$
—

14,616,916

$
146

$
78,857

$
(66,393)

$
12,610

$
17

$
12,627
Net loss

—

—

—

—

—

(3,302)

(3,302)

10

(3,292)
Issuance of common stock in connection with purchase agreements

—

—

2,060,000

21

4,293

—

4,314

—

4,314
Stock-based compensation

—

—

—

—

212

—

212

—

212
Balance, September 30, 2020

47

$
—

16,676,916

$
167

$
83,362

$
(69,695)

$
13,834

$
27

$
13,861

For the Nine Months Ended September 30, 2020

Preferred Stock

Common Stock

Additional

Noncontrolling

Outstanding

Par

Outstanding

Par

Paid-in

Accumulated

Total

Interest in

Shares

Value

Shares

Value

Capital

Deficit

Precipio, Inc.

Joint Venture

Total
Balance, January 1, 2020

47

$
—

7,898,117

$
79

$
74,065

$
(60,939)

$
13,205

$
—

$
13,205
Net loss

—

—

—

—

—

(8,756)

(8,756)

27

(8,729)
Conversion of convertible notes into common stock

—

—

3,908,145

39

2,137

—

2,176

—

2,176
Issuance of common stock in connection with purchase agreements

—

—

4,870,654

49

6,872

—

6,921

—

6,921
Write-off beneficial conversion feature in conjunction with convertible note extinguishment

—

—

—

—

(523)

—

(523)

—

(523)
Write-off debt premiums (net of debt discounts) in conjunction with convertible note conversions

—

—

—

—

270

—

270

—

270
Stock-based compensation

—

—

—

—

541

—

541

—

541
Balance, September 30, 2020

47

$
—

16,676,916

$
167

$
83,362

$
(69,695)

$
13,834

$
27

$
13,861


		For the Three Months Ended September 30, 2021
	Preferred Stock				Common Stock			Additional						Noncontrolling
	Outstanding		Par		Outstanding	Par		Paid-in		Accumulated		Total		Interest in
	Shares		Value		Shares	Value		Capital		Deficit		Precipio, Inc.		Joint Venture		Total
Balance, July 1, 2021	47		$	—	22,707,063	$	227	$	103,029	$	(76,029)	$	27,227	$	31	$	27,258
Net loss	—			—	—		—		—		(1,860)		(1,860)		6		(1,854)
Proceeds upon issuance of common stock from exercise of stock options	—			—	1,229		—		3		—		3		—		3
Stock-based compensation	—			—	—		—		510		—		510		—		510
Balance, September 30, 2021	47		$	—	22,708,292	$	227	$	103,542	$	(77,889)	$	25,880	$	37	$	25,917

		For the Nine Months Ended September 30, 2021
	Preferred Stock				Common Stock			Additional						Noncontrolling
	Outstanding		Par		Outstanding	Par		Paid-in		Accumulated		Total		Interest in
	Shares		Value		Shares	Value		Capital		Deficit		Precipio, Inc.		Joint Venture		Total
Balance, January 1, 2021	47		$	—	17,576,916	$	176	$	85,523	$	(71,564)	$	14,135	$	27	$	14,162
Net loss	—			—	—		—		—		(6,325)		(6,325)		10		(6,315)
Issuance of common stock in connection with purchase agreements	—			—	500,000		5		1,255		—		1,260		—		1,260
Issuance of common stock in connection with at the market offering, net of issuance costs	—			—	4,501,000		45		14,902		—		14,947		—		14,947
Proceeds upon issuance of common stock from exercise of warrants	—			—	74,000		1		399		—		400		—		400
Proceeds upon issuance of common stock from exercise of stock options	—			—	1,229		—		3		—		3		—		3
Issuance of common stock for consulting services	—			—	55,147		—		150		—		150		—		150
Stock-based compensation	—			—	—		—		1,310		—		1,310		—		1,310
Balance, September 30, 2021	47		$	—	22,708,292	$	227	$	103,542	$	(77,889)	$	25,880	$	37	$	25,917

See notes to unaudited condensed consolidated financial statements

Table of Contents

PRECIPIO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(unaudited)


	Nine Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(6,315)	$	(8,729)	$	(9,895)	$	(6,315)

Adjustments to reconcile net loss to net cash flows used in operating activities:
Depreciation and amortization		835		829		910		835
Amortization of operating lease right-of-use asset		162		161		139		162
Amortization of finance lease right-of-use asset		44		38		99		44
Amortization of deferred financing costs, debt discounts and debt premiums		2		319		3		2
Gain on forgiveness of debt		(794)		—		—		(794)
Gain on settlement of liability		(47)		—		(4)		(47)
Loss on extinguishment of convertible notes		—		1,225
Stock-based compensation		1,310		541		3,405		1,310
Value of stock issued in payment of services		150		—		—		150
Provision for losses on doubtful accounts		82		1,025		245		82
Warrant revaluation		434		293		(578)		434
Derecognition of finance lease right-of-use asset		60		—		—		60
Gain from sale of fixed asset		—		(55)
Changes in operating assets and liabilities:
Accounts receivable		222		(1,537)		(503)		222
Inventories		(330)		(96)		(99)		(330)
Finance lease right-of-use assets		(41)		—
Other assets		(354)		(151)		341		(354)
Accounts payable		(156)		(107)		235		(156)
Operating lease liabilities		(167)		(157)		(136)		(167)
Accrued expenses and other liabilities		(274)		418		(383)		(274)
Net cash used in operating activities		(5,177)		(5,983)		(6,221)		(5,136)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(624)		(121)		(225)		(624)
Proceeds from sale of fixed asset		—		55
Net cash used in investing activities		(624)		(66)		(225)		(624)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on finance lease obligations		(79)		(47)		(124)		(79)
Deposits on finance lease right-of-use assets						—		(41)
Issuance of common stock, net of issuance costs		16,207		6,921		129		16,207
Proceeds from exercise of warrants		400		—		11		400
Proceeds from exercise of stock options		3		—		—		3
Proceeds from PPP Loan		—		787
Principal payments on long-term debt		(33)		(302)		(94)		(33)
Payments on common stock warrant liabilities		(130)		—		—		(130)
Net cash flows provided by financing activities		16,368		7,359
Net cash flows (used in) provided by financing activities						(78)		16,327
NET CHANGE IN CASH		10,567		1,310		(6,524)		10,567
CASH AT BEGINNING OF PERIOD		2,656		848		11,668		2,656
CASH AT END OF PERIOD	$	13,223	$	2,158	$	5,144	$	13,223

See notes to unaudited condensed consolidated financial statements.

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PRECIPIO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS- CONTINUED

(Dollars in thousands)

(unaudited)


	Nine Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2022		2021
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest	$	22	$	25	$	32	$	22

SUPPLEMENTAL DISCLOSURE OF CONSULTING SERVICES OR ANY OTHER NON-CASH COMMON STOCK RELATED ACTIVITY
Purchases of equipment financed through accounts payable		35		—		34		35
Equipment financed through finance lease obligations		—		21
Conversion of convertible debt, plus interest, into common stock		—		2,176
Prepaid insurance financed with loan		—		23		413		—
Write-off of beneficial conversion feature in conjunction with convertible note extinguishment		—		523
Operating lease right-of-use assets obtained in exchange for operating lease obligations						92		—
Finance lease right-of-use assets obtained in exchange for finance lease obligations		346		—		—		346
Write-off of (debt premiums) debt discounts, net, in conjunction with convertible note conversions		—		(270)

See notes to unaudited condensed consolidated financial statements.

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PRECIPIO, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021

1. BUSINESS DESCRIPTION

Business Description.

Precipio, Inc., and its subsidiaries, (collectively, “we”, “us”, “our”, the “Company” or “Precipio”) is a healthcare solutions company focused on cancer diagnostics. The Company’s business mission is to address the pervasive problem of cancer misdiagnoses by developing solutions to mitigate the root causes of this problem in the form of diagnostic products, reagents and services. Misdiagnoses originate from aged commercial diagnostic cancer testing technologies, lack of subspecialized expertise, and sub-optimal laboratory processes that are needed in today’s diagnostic cancer testing in order to provide accurate, rapid, and resource-effective results to treat patients. Industry studies estimate 1 in 5 blood-cancer patients are misdiagnosed. As cancer diagnostic testing has evolved from cellular to molecular (genes and exons), laboratory testing has become extremely complex, requiring even greater diagnostic precision, attention to process and a more appropriate evaluation of the abundance of genetic data to effectively gather, consider, analyze and present information for the physician for patient treatment. Precipio sees cancer diagnostics ~~and reagent technology company providing~~as requiring a holistic approach to improve diagnostic data for improved interpretations with the intent to reduce misdiagnoses. By delivering diagnostic products, reagents and services that improve the accuracy and efficiency of diagnostics, leading to fewer misdiagnoses, we believe patient outcomes can be improved through the ~~oncology market. We~~selection of appropriate therapeutic options. Furthermore, we believe that better patient outcomes will have ~~built~~a positive impact on healthcare expenses as misdiagnoses are reduced. Better Diagnostic Results – Better Patient Outcome – Lower Healthcare Expenditures.

To deliver its strategy, the Company has structured its organization in order to drive development of diagnostic products. Laboratory and continue to develop a platform designed to eradicate the problem of misdiagnosis by harnessing the intellect, expertise and technologies developed in collaboration with academic institutions, and to deliver quality diagnostic information to physicians and their patients worldwide.

~~We operate a cancer diagnostic laboratory~~R&D facilities located in New Haven, Connecticut and ~~have partnered with various academic institutions to capture~~Omaha, Nebraska house development teams that collaborate on new products and services. The Company operates CLIA laboratories in both the ~~expertise, experience~~New Haven, Connecticut and ~~technologies developed within academia to provide a better standard of~~Omaha, Nebraska locations providing essential blood cancer diagnostics ~~and aim~~ to ~~solve~~office-based oncologists in many states nationwide. To deliver on our strategy of mitigating misdiagnoses we rely heavily on our CLIA laboratory to support R&D beta-testing of the ~~growing problem of cancer misdiagnosis.~~products we develop, in a clinical environment.

~~In support~~

Our operating structure promotes the harnessing of our ~~platform, we also operate a research~~proprietary technology and ~~development facility in Omaha, Nebraska which focuses on~~genetic diagnostic expertise to bring to market the ~~development~~Company’s robust pipeline of various technologies, among them our internally developed proprietary products IV-Cell and HemeScreen. To expand and accelerate our product offering capabilities to commercial laboratories, the Omaha facility was recently CLIA and CAP certified. Functioning side-by-side as a CLIA operating laboratory, the Omaha facility isinnovative solutions designed to ~~expand our proficiencies and knowledge in transitioning R&D lab generated technology into a commercial laboratory environment.~~

~~Capitalizing on this strategy, during~~address the ~~end~~root causes of the third quarter 2020, we transitioned our HemeScreen technology from the R&D facility to the commercial laboratory setting launching the HemeScreen Reagent Rental (HSRR) program. HSRR offers oncology practices and hospitals diagnostic reagent sets of the patent-pending HemeScreen technology at significantly lower costs, while reducing the test reporting time from ~~seven~~ ~~(7) to~~ ~~ten~~ ~~(10) days down to~~ ~~one~~ (1) day and improving patient care. HemeScreen tests various molecular markers required for the diagnosis of certain hematologic malignancies, such as acute myeloid leukemia (AML) and myeloproliferative neoplasm (MPN). The HSRR program provides a turn-key test offering together with an option to lease-to-own diagnostic testing equipment from the Company. In most practice settings, such hematologic cancer tests are referenced out as both the cost of equipment and the cost of the diagnostic reagents are prohibitive. By utilizing our HSRR program, the customer can generate in-house testing revenues through reagent purchase contracts and economical lease-to-own rates instead of sending out the same tests to large commercial reference laboratories. The HSRR customer also benefits from obtaining faster results, thus ultimately providing better patient care. During the first half of 2021, the Company began to recognize recurring revenues from its first few HSRR accounts.

During the second quarter of 2021, the Company expanded access to its COVID-19 rapid antibody test by listing on Amazon.com’s healthcare website platform. The antibody test is manufactured in the U.S. by Nirmidas Biotech, of California. Precipio holds the exclusive rights to distribute this product on Amazon’s platform. The Company’s COVID-19 rapid antibody test may currently be purchased by any medical practitioner having a National Provider Identifier (“NPI”), hospitals, medical centers and other qualified medical POC providers

The Company also holds an exclusive license to patented ICE-COLD-PCR (“ICP”) technology from Dana-Farber Cancer Institute, Inc., or Dana-Farber, at Harvard University. We believe that such technology will provide additional services and products directed at improving diagnostic outcomes and providing physicians with options for targeted therapies.misdiagnoses.

Joint Venture.

In April 2020, the Company formed a joint venture with Poplar Healthcare PLLC (“Poplar”), which we refer to as the “Joint Venture”. The Joint Venture was formed by the Limited Liability Company Agreement of Precipio

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Oncometrix LLC, a Delaware limited liability company (“POC”), which was entered into as of April 11, 2020 (the “Effective Date”), by and among POC, Poplar, and Precipio SPV Inc. (“Precipio SPV”), a newly formed subsidiary of the Company, together with such other persons who from time to time become party to the Limited Liability Company Agreement by executing a counterpart signature page in accordance with the terms hereof. POC was formed as a limited liability company on April 2, 2020 in accordance with the statutes and laws of the State of Delaware relating to limited liability companies. Precipio SPV was incorporated in the State of Delaware on March 10, 2020 for the sole purpose of being a party to the Joint Venture.

Under the terms of the Joint Venture, Precipio SPV has a 49% ownership interest in the Joint Venture, with Poplar having a 51 % ownership. Pursuant to the Limited Liability Company Agreement, Poplar, at any time, has the right to require Precipio SPV to purchase all, but not less than all, of Poplar’s shares in the Joint Venture (the “Poplar Put Right”). The purchase price for Poplar’s shares shall be $1.00 per share, or NaN dollars, and Precipio SPV would, therefore, become the sole 100% owner of the Joint Venture at the time the Poplar Put Right became effective. The Company has determined that it holds a variable interest in ~~the Joint Venture~~a joint venture formed in April 2020 (the “Joint Venture”) and is the primary beneficiary of the variable interest entity (“VIE”). See Note 2 - Summary of Significant Accounting Policies for further discussion regarding consolidation of variable interest entities.

The business purpose of the Joint Venture is to facilitate and capitalize on the combined capabilities, resources and healthcare industry relationships of its members by partnering, promoting and providing oncology services to office based physicians, hospitals and medical centers. Operational services of the Joint Venture are performed entirely by its members and employees of its members. Precipio SPV’s responsibilities include product and account management services, selling & marketing, laboratory diagnostic services and general & administrative services. Precipio SPV is entitled to a management fee for the services it provides. This management fee is established through service agreements which were executed in conjunction with the formation of the Joint Venture. Poplar receives a similar fee for the billing services that it provides.

Going Concern.

The condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America (“GAAP”) applicable for a going concern, which assume that the Company will realize its assets and discharge its liabilities in the ordinary course of business. The Company has incurred substantial operating losses and has used cash in its operating activities for the past several years. ~~As of~~For the nine months ended September 30, ~~2021,~~2022, the Company had a net loss of ~~$6.3 million, working capital of $11.4~~$9.9 million and net cash used in operating activities of ~~$5.2~~$6.2 million. As of September 30, 2022, the Company had an accumulated deficit of $90.0 million and working capital of $3.0 million. The Company’s ability to continue as a going concern over the next twelve months from the date of issuance of these condensed consolidated financial statements in this Quarterly Report on Form 10-Q is dependent upon a combination of achieving its business plan, including generating additional revenue and avoiding potential business disruption due to the novel coronavirus (“COVID-19”) pandemic, and raising additional financing to meet its debt obligations and paying liabilities arising from normal business operations when they come due.

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

●

On April 2, 2021, the Company entered into a sales agreement with A.G.P./Alliance Global Partners (“AGP”), pursuant to which the Company may offer and sell its common stock ~~par value $0.01 per share (the “Common Stock”) (the “Shares”),~~ having aggregate sales proceeds of up to $22.0 million, to or through AGP, as sales agent (the “AGP Sales Agreement”)~~, from time to time, in an “at the market offering” (as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended) of the Shares (the “ATM Offering”)~~. The Company is limited in the number of shares it can sell in the ATM Offering due to the offering limitations currently applicable to the Company under General Instruction I.B.6. of Form S-3 and the Company’s public float as of the applicable date of such sales, as well as the number of authorized and unissued shares available for issuance, in accordance with the terms of the AGP Sales Agreement. The offer and sales of our shares of Common Stock to or through AGP, will be made pursuant to the registration statement (the “Registration Statement”) on Form S-3 (File No. 333-237445), which was declared effective by the Securities and Exchange Commission (the “SEC”) on April 13,

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~~2020, for an aggregate offering price of up to $50.0 million.~~ From April 2, 2021 through the date the condensed consolidated financial statements were issued, we have ~~already~~ received approximately ~~$15.4~~$15.6 million in gross proceeds through the AGP Sales Agreement from the sale of ~~4,501,000~~4,586,023 shares of common stock, leaving the Company ~~an additional $6.6~~with $6.4 million available for future sales pursuant to the AGP Sales Agreement.

Notwithstanding the aforementioned circumstances, there remains substantial doubt about the Company’s ability to continue as a going concern for the next twelve months from the date these condensed consolidated financial statements were issued. There can be no assurance that the Company will be able to successfully achieve its initiatives summarized above in order to continue as a going concern over the next twelve months from the date of issuance of this Quarterly Report Form 10-Q. The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern and do not include any adjustments that might result should the Company be unable to continue as a going concern as a result of the outcome of this uncertainty.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation.

The accompanying condensed consolidated financial statements are presented in conformity with GAAP and, as of September 30, ~~2021~~2022 and for the three and nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, are unaudited and reflect all adjustments (consisting of only normal recurring adjustments) that are necessary for a fair presentation of the financial position and operating results for the interim periods. These unaudited condensed consolidated financial statements and notes should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, ~~2020~~2021 contained in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (the “SEC”) on March ~~29, 2021.~~30, 2022. The results of operations for the interim periods presented are not necessarily indicative of the results for fiscal year ~~2021.~~2022.

The condensed consolidated financial statements include the accounts of Precipio and its wholly owned subsidiaries, and the Joint Venture which is a VIE in which we are the primary beneficiary. Refer to the section titled “Consolidation of Variable Interest Entities” for further information related to our accounting for the Joint Venture. All intercompany balances have been eliminated in consolidation.

~~Reclassifications.~~

Certain prior period amounts of property and equipment, net and operating lease right-of-use (“ROU”) assets have been reclassified to finance lease right-of-use assets to conform to the current period presentation. These reclassifications had no effect on previously reported net earnings or total assets. As of December 31, 2020, the amounts reclassified to finance lease right-of-use assets were $0.2 million of property and equipment, net and less than $0.1 million of operating lease right-of-use assets.

Recently Adopted Accounting Pronouncements.

In ~~December 2019, the FASB issued ASU 2019-12 “~~~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~”, which is intended to improve consistent application and simplify the accounting for income taxes. This ASU removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance. The Company adopted this guidance on January 1, 2021. The adoption of this standard was not material to our condensed consolidated financial statements.

~~Recent Accounting Pronouncements Not Yet Adopted.~~

In July 2021, the ~~FASB~~Financial Accounting Standards Board (FASB) issued ~~ASU~~Accounting Standards Update (ASU) 2021-05, Lease (Topic 842), “Lessors - Certain Leases with Variable Lease Payments”. This guidance amends the lease classification accounting for lessors for certain leases with variable lease payments that do not depend on a reference index or a rate and would have resulted in the recognition of a loss at lease commencement if classified as a sales-type or direct financing lease. Under the new guidance, these leases will be classified

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as an operating lease. The amendments are effective for fiscal years beginning after December 15, 2021, with early adoption permitted. The Company ~~is currently evaluating the impact that~~adopted this ~~ASU will have~~guidance on ~~its~~January 1, 2022. The adoption of this standard was not material to our condensed consolidated financial ~~statements and related disclosures.~~statements.

In May 2021, the FASB issued ASU 2021-04, “Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” which clarifies the accounting for a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after a modification or exchange and the related EPS effects of such transaction if recognized as an adjustment to equity. This ASU becomes effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, and should be applied prospectively to modifications or exchanges occurring on or after the effective date. The Company adopted this

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guidance on January 1, 2022. The adoption of this standard was not material to our condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted.

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820) (“ASU 2022-03”). The amendments in ASU 2022-03 clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The amendments in this Update also require additional disclosures for equity securities subject to contractual sale restrictions. The provisions in this Update are effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company does not expect to early adopt this ASU. The Company is currently ~~evaluating~~assessing the potential impact that the adoption of this ASU will have on its condensed consolidated financial ~~statements and related disclosures.~~statements.

In August 2020, the FASB issued ASU 2020-06 “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity and improves and amends the related EPS guidance for both Subtopics. The ASU will be effective for annual reporting periods after December 15, 2023 and interim periods within those annual periods and early adoption is permitted in annual reporting periods ending after December 15, 2020. The Company is currently assessing the potential impact that the adoption of this ASU will have on its condensed consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13 “Measurement of Credit Losses on Financial Instruments” ~~and subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04 and ASU 2019-05 (collectively, “Topic 326”)~~, which replaces current methods for evaluating impairment of financial instruments not measured at fair value, including trade accounts receivable and certain debt securities, with a current expected credit loss model. ~~Topic 326,~~This ASU, as amended, is effective for the Company for reporting periods beginning after December 15, 2022. The Company is currently assessing the potential impact that the adoption of this ASU will have on its condensed consolidated financial statements.

Loss Per Share.

Basic loss per share is calculated based on the weighted-average number of common shares outstanding during each period. Diluted loss per share includes shares issuable upon exercise of outstanding stock options, warrants or conversion rights that have exercise or conversion prices below the market value of our common stock. Options, warrants and conversion rights pertaining to ~~3,596,917~~4,528,682 and ~~1,832,514~~3,596,917 shares of our common stock have been excluded from the computation of diluted loss per share at September 30, ~~2021~~2022 and ~~2020,~~2021, respectively, because the effect is anti-dilutive due to the net loss.

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


	September 30,		September 30,
	2021	2020	2022	2021
Stock options	2,647,516	808,245	3,698,712	2,647,516
Warrants	831,901	906,769	712,470	831,901
Preferred stock	117,500	117,500	117,500	117,500
Total	3,596,917	1,832,514	4,528,682	3,596,917

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Consolidation of Variable Interest Entities.

We evaluate any entity in which we are involved to determine if the entity is a VIE and if so, whether we hold a variable interest and are the primary beneficiary. We consolidate VIEs that are subject to assessment when we are deemed to be the primary beneficiary of the VIE. The process for determining whether we are the primary beneficiary of the VIE is to conclude whether we are a party to the VIE holding a variable interest that meets both of the following criteria: (1)

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has the power to make decisions that most significantly affect the economic performance of the VIE, and (2) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE.

We have determined that we hold a variable interest in the Joint Venture, have the power to make significant operational decisions on behalf of the VIE and also have the obligation to absorb the majority of the losses from the VIE. As such we have also determined that we are the primary beneficiary of the VIE. The following table presents information about the carrying value of the assets and liabilities of the Joint Venture which we consolidate and which are included on our condensed consolidated balance sheets. Intercompany balances are eliminated in consolidation and not reflected in the following table.


(dollars in thousands)	September 30, 2021		December 31, 2020		September 30, 2022		December 31, 2021
Assets:
Accounts receivable, net	$	205	$	538	$	248	$	180
Total assets	$	205	$	538	$	248	$	180
Liabilities:
Accrued expenses	$	19	$	27	$	32	$	36
Total liabilities	$	19	$	27	$	32	$	36
Noncontrolling interest in Joint Venture	$	37	$	27	$	58	$	40
Total stockholders' equity	$	72	$	53	$	114	$	79

3. LONG-TERM DEBT

Long-term debt consists of the following:


	Dollars in Thousands				Dollars in Thousands
	September 30, 2021		December 31, 2020		September 30, 2022		December 31, 2021
Department of Economic and Community Development (DECD)	$	212	$	233	$	184	$	205
DECD debt issuance costs		(19)		(22)		(16)		(19)
Financed insurance loan		—		12		340		—
Paycheck Protection Program		—		787
Total long-term debt		193		1,010		508		186
Current portion of long-term debt		(26)		(648)		(367)		(26)
Long-term debt, net of current maturities	$	167	$	362	$	141	$	160

Department of Economic and Community Development.

On January 8, 2018, the Company ~~received gross proceeds of $400,000 when it~~ entered into an agreement with the Connecticut Department of Economic and Community Development (“DECD”) by which the Company received ~~a grant of $100,000 and~~ a loan of $300,000 secured by substantially all of the Company’s assets (the “DECD 2018 Loan”). The DECD 2018 Loan is a ten-year loan due on December 31, 2027 and includes interest paid monthly at 3.25%.

~~Due to the economic impact of COVID-19, DECD offered financial relief to all businesses with certain loans, including the Company’s DECD 2018 Loan.~~ The ~~relief includes the option to defer all payments from April 1, 2020 to August 1, 2020 and the deferred payments will be added to the end of the loan. The Company chose to defer its payments and the~~ maturity date of the DECD 2018 Loan was extended to May 31, ~~2028. The payment deferral~~2028 and the modification did not have a material impact on the Company’s cash flows.

~~Debt issuance costs associated with the DECD 2018 Loan were approximately $31,000.~~ Amortization of the debt issuance costs were ~~less than~~ $1,000 for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~approximately~~ $3,000 ~~and $2,000~~ for the nine months ended September 30, 2022 and 2021, ~~and 2020,~~ respectively. Net debt issuance costs were approximately $19,000 and $22,000 at September 30, 2021 and December 31, 2020, respectively, and are presented as a reduction of the related debt in the accompanying condensed consolidated balance sheets. Amortization for ~~each~~ ~~of the~~ ~~nextfiveyears~~ ~~is expected to be approximately $3,000.~~

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~~Paycheck Protection Program.~~Financed Insurance Loan.

~~On April 23, 2020,~~The Company finances certain of its insurance premiums (the “Financed Insurance Loans”). In July 2022, the Company ~~entered into~~financed $0.4 million with a promissory note (the “Promissory Note”) evidencing an unsecured $787,200 loan under the Paycheck Protection Program (the “PPP Loan”). The Paycheck Protection Program (or “PPP”) was established under the recently congressionally-approved Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”)5.99% interest rate and is ~~administered by the U.S. Small Business Administration. The PPP Loan~~obligated to ~~the Company was made~~make payments on a monthly basis through ~~Webster Bank, N.A.~~

Under the terms of the CARES Act, PPP Loan recipients can apply for and be granted forgiveness for all or a portion of loans granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payroll costs and mortgage interest, rent or utility costs and the maintenance of employee and compensation levels.

June 2023. As of September 30, 2022 and December 31, ~~2020, using~~2021, the ~~eight-week forgiveness period, the Company had incurred approximately $0.8 million in payroll, payroll related costs and other anticipated qualifying expenses with $0.6 million the PPP~~Financed Insurance Loan’s outstanding balance of $0.3 million and zero, respectively, was included in current maturities of ~~long-term debt and $0.2 million included in~~ long-term debt in the Company’s condensed consolidated balance sheet. A corresponding prepaid asset was included in other current assets.

On February 11, 2021, the Company filed its application for loan forgiveness with Webster Bank and was subsequently notified by Webster Bank that effective March 24, 2021 the PPP Loan, plus accrued interest, was considered fully forgiven. As a result, the Company recorded a gain on forgiveness of debt of $0.8 million ~~in the condensed consolidated statements of operations during the nine months ended September 30, 2021.~~

~~4. CONVERTIBLE NOTES~~

~~Convertible Bridge Notes.~~

On April 20, 2018, the Company entered into a securities purchase agreement (the “2018 Note Agreement”) with certain investors, as amended on November 29, 2018 (the “Amendment Agreement”) and amended on April 16, 2019 (“Amendment No.2 Agreement”). The Company also entered into a securities purchase agreement on May 14, 2019. In connection with these securities purchase agreements, the Company issued Senior Secured Convertible Promissory Notes (the “Bridge Notes”) along with warrants during 2018 and 2019.

On March 26, 2020, the Company entered into an amendment agreement (the “March 2020 Amendment”) amending the terms of that certain Amendment No. 2 Agreement dated April 16, 2019 and the securities purchase agreement dated May 14, 2019. As a result of the March 2020 Amendment, (i) the maturity date of the Bridge Notes issued in April 2019 (the “April 2019 Bridge Notes”) and the Bridge Notes issued in May 2019 (the “May 2019 Bridge Notes”) was extended three months from April 16, 2020 to July 16, 2020, (ii) the floor price at which conversions may occur under the April 2019 Bridge Notes and the May 2019 Bridge Notes was amended from $2.25 to $0.40, and (iii) guaranteed interest on the April 2019 Bridge Notes and the May 2019 Bridge Notes was amended from twelve months to eighteen months.

The Company reviewed the modifications and concluded that the March 2020 Amendment would be treated as an extinguishment of the related April 2019 Bridge Notes and May 2019 Bridge Notes. As a result, the Company recorded a debt premium on the post-modification debt of $0.8 million and a loss on extinguishment of convertible notes of $1.2 million in the condensed consolidated statements of operations during the nine months ended September 30, 2020.

During the three and nine months ended September 30, 2020, 0 and $2.2 million, respectively, of bridge notes, plus interest, were converted into 0 and 3,908,145 shares of common stock of the Company, respectively.

During the three months ended September 30, 2020, there was no Bridge Note activity. During the nine months ended September 30, 2020, the change in Bridge Note debt discounts and debt premiums was as follows:


~~(Dollars in thousands)~~		~~For the Nine Months Ended September 30,~~

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2020

Debt Discounts

Debt Premiums
Beginning balance at January 1

$
(1,796)

$
—
Additions:

—

793
Deductions:

Amortization (accretion) (1)

703

(385)
Write-off related to note conversions (2)

138

(408)
Write-off related to note extinguishment (3)

955

—
Balance at September 30

$
—

$
—

~~(1)~~

~~Amortization/accretion is recognized as interest expense/income within the condensed consolidated statements of operations based on the effective interest method.~~

~~(2)~~

~~Write-offs associated with note conversions are recognized as an offset to additional paid-in capital at the time of the conversion.~~

~~(3)~~

~~Write-offs associated with note extinguishment are recognized as a loss and included in loss on extinguishment of convertible notes in the condensed consolidated statements of operations.~~

~~There were 0 convertible notes outstanding at September 30, 2021 and December 31, 2020, respectively.~~

5.4. ACCRUED EXPENSES OTHER CURRENT LIABILITIES.

Accrued expenses at September 30, ~~2021~~2022 and December 31, ~~2020~~2021 are as follows:


(dollars in thousands)	2021		2020		2022		2021
Accrued expenses	$	739	$	906	$	753	$	1,033
Accrued compensation		417		685		680		718
Accrued franchise, property and sales and use taxes		390		426		84		148
Accrued interest		19		19		19		19
	$	1,565	$	2,036	$	1,536	$	1,918

The Company recorded certain settled reductions in accrued expenses and accounts payable as gains which are included in gain on settlement of liability, net in the condensed consolidated statements of operations. During the three and nine months ended September 30, ~~2021 less than $0.1 million,~~2022, $3,000 and $4,000, respectively, ~~was~~were recorded as a ~~gain. There were 0 gains~~gain on settlement of ~~liability recorded during~~liability. During the three and nine months ended September 30, ~~2020.~~2021, $13,000 and $47,000, respectively, were recorded as a gain on settlement of liability.

6.5. COMMITMENTS AND CONTINGENCIES

The Company is involved in legal proceedings related to matters, which are incidental to its business. Also, the Company is delinquent on the payment of outstanding accounts payable for certain vendors and suppliers who have taken or have threatened to take legal action to collect such outstanding amounts. See below for a discussion on these matters.

LITIGATIONS

CPA Global provides us with certain patent management services. On February 6, 2017, CPA Global claimed that we owed approximately $0.2 million for certain patent maintenance services rendered. CPA Global has not filed claims against us in connection with this allegation. A liability of less than $0.1 million has been recorded and is reflected in accounts payable within the accompanying condensed consolidated balance sheets at September 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

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LEGAL AND REGULATORY ENVIRONMENT

The healthcare industry is subject to numerous laws and regulations of federal, state and local governments. These laws and regulations include, but are not limited to, matters such as licensure, accreditation, government healthcare program participation requirement, reimbursement for patient services and Medicare and Medicaid fraud and abuse. Government activity has increased with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by healthcare providers.

Violations of these laws and regulations could result in expulsion from government healthcare programs together with the imposition of significant fines and penalties, as well as significant repayments for patient services previously billed. Management believes that the Company is in compliance with fraud and abuse regulations, as well as other applicable government laws and regulations. While no material regulatory inquiries have been made, compliance with

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such laws and regulations can be subject to future government review and interpretation, as well as regulatory actions unknown or unasserted at this time.

7.6. LEASES

The Company leases administrative facilities and laboratory equipment through operating lease agreements. In addition, we rent various equipment used in our diagnostic lab and in our administrative offices through finance lease arrangements. Our operating leases include both lease (e.g., fixed payments including rent) and non-lease components (e.g., common area or other maintenance costs). The facility leases include 1one or more options to renew, from 1 to 5 years or more. The exercise of lease renewal options is typically at our sole discretion, therefore, the renewals to extend the lease terms are not included in our ~~ROU~~right-of-use (“ROU”) assets and lease liabilities as they are not reasonably certain of exercise. We regularly evaluate the renewal options and, when they are reasonably certain of exercise, we include the renewal period in our lease term. As our leases do not provide an implicit rate, we use our collateralized incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments.

Operating leases result in the recognition of ROU assets and ~~operating~~ lease liabilities on the balance sheet. ROU assets represent our right to use the leased asset for the lease term and lease liabilities represent our obligation to make lease payments. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Lease expense is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The primary leases we enter into with initial terms of 12 months or less are for equipment. On May 11, 2022, we extended the lease term for our office facility in Omaha, Nebraska by modifying the expiration date from May 31, 2022 to May 31, 2025. As a result of this lease extension agreement, we recognized an additional operating lease ROU asset and corresponding operating lease liability of $0.1 million which equals the present value of the remaining payments due under the lease extension.

The Company also recognizes ROU assets from finance leases in connection with its HSRR program. For certain customers in the HSRR program, the Company leases diagnostic testing equipment and then subleases the equipment to the customer. Finance lease ROU assets and finance lease liabilities are recognized at the lease commencement date, and at the sublease commencement date the finance lease ROU asset is derecognized and is recorded as cost of sales in the condensed consolidated statements of operations. There were no derecognized finance lease ROU assets for the three and nine months ended September 30, 2022. Derecognized finance lease ROU assets for the three and nine months ended September 30, 2021 were less than $0.1 million, respectively. ~~There were 0 finance lease ROU asset transactions during the three and nine months ended September 30, 2020.~~ Where Precipio is the lessor, customers lease diagnostic testing equipment from the Company with the transfer of ownership to the customer at the end of the lease term at no additional cost. For these contracts, the Company accounts for the arrangements as sales-type leases. The lease asset for sales-type leases is the net investment in leased asset, which is recorded once the finance lease ROU asset is derecognized and a related gain or loss is noted. The net investment in leased assets was $0.1 million and $0.2 million as of September 30, 2022 and December 31, 2021, respectively, and is included in other current assets and other assets in our condensed consolidated balance sheets.

The ~~net investment in leased assets was $0.1 million~~balance sheet presentation of our operating and ~~less than $0.1 million~~finance leases is as ~~of September 30, 2021 and December 31, 2020, respectively.~~follows:

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~~The balance sheet presentation of our operating and finance leases is as follows:~~

(dollars in thousands)

Classification on the Consolidated Balance Sheet

September 30, 2021

December 31, 2020 (1)
Assets:

Operating lease right-of-use assets, net

$
144

$
306
Finance lease right-of-use assets, net (2)

487

204
Total lease assets

$
631

$
510

Liabilities:

Current:

Current maturities of operating lease liabilities

$
93

$
225
Current maturities of finance lease liabilities

244

48
Noncurrent:

Operating lease liabilities, less current maturities

57

92
Finance lease liabilities, less current maturities

187

116
Total lease liabilities

$
581

$
481


(dollars in thousands)
Classification on the Condensed Consolidated Balance Sheet	September 30, 2022		December 31, 2021
Assets:
Operating lease right-of-use assets, net	$	811	$	858
Finance lease right-of-use assets, net (1)		284		371
Total lease assets	$	1,095	$	1,229

Liabilities:
Current:
Current maturities of operating lease liabilities	$	194	$	166
Current maturities of finance lease liabilities		168		222
Noncurrent:
Operating lease liabilities, less current maturities		625		697
Finance lease liabilities, less current maturities		89		159
Total lease liabilities	$	1,076	$	1,244

(1)

As of December 31, 2020, $175 of property and equipment, net and $29 of operating lease right-of-use assets were reclassified to finance lease right-of-use assets to conform to the current period presentation.

~~(2)~~

~~As of~~ September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, finance lease right-of-use assets included ~~$155~~$23 and ~~$29,~~$61, respectively, of assets related to finance leases associated with the HSRR program.

As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the estimated future minimum lease payments, excluding non-lease components, are as follows:


(dollars in thousands)	Operating Leases				Finance Leases				Total				Operating Leases				Finance Leases				Total
		September 30,		December 31,		September 30,		December 31,		September 30,		December 31,		September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
		2021		2020		2021		2020		2021		2020		2022		2021		2022		2021		2022		2021
2021	$	60	$	241	$	60	$	61	$	120	$	302
2022		48		48		176		49		224		97	$	62	$	227	$	33	$	176	$	95	$	403
2023		35		35		100		38		135		73		252		218		101		101		353		319
2024		17		17		80		28		97		45		239		204		80		80		319		284
2025		—		—		65		13		65		13		205		191		65		65		270		256
2026														195		195		26		26		221		221
Thereafter		—		—		26		—		26		—		—		—		—		—		—		—
Total lease obligations		160		341		507		189		667		530		953		1,035		305		448		1,258		1,483
Less: Amount representing interest		(10)		(24)		(76)		(25)		(86)		(49)		(134)		(172)		(48)		(67)		(182)		(239)
Present value of net minimum lease obligations		150		317		431		164		581		481		819		863		257		381		1,076		1,244
Less, current portion		(93)		(225)		(244)		(48)		(337)		(273)		(194)		(166)		(168)		(222)		(362)		(388)
Long term portion	$	57	$	92	$	187	$	116	$	244	$	208	$	625	$	697	$	89	$	159	$	714	$	856

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Other information as of September 30, ~~2021~~2022 and December 31, ~~2020:~~2021 is as follows:


	September 30,	December 31,	September 30,	December 31,
	2021	2020	2022	2021
Weighted-average remaining lease term (years):
Operating leases	1.7	1.9	3.9	4.7
Finance leases	3.2	3.6	2.9	3.1
Weighted-average discount rate:
Operating leases	8.00%	8.00%	8.00%	8.00%
Finance leases	18.84%	8.28%	10.23%	10.03%

During the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, operating cash flows from operating leases was $0.1 million and $0.2 million, respectively, and operating lease ROU assets obtained in exchange for operating lease liabilities was 0,$0.1 million and zero, respectively.

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Operating Lease Costs

Operating lease costs were approximately $0.1 million during the three months ended September 30, 2022 and 2021, respectively, and ~~2020, respectively,~~$0.2 million and $0.3 million ~~and $0.2 million during~~for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. These costs are primarily related to long-term operating leases for the Company’s facilities and laboratory equipment. Short-term and variable lease costs were less than $0.1 million for the three and nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

Finance Lease Costs

Finance lease amortization and interest expenses are included in the condensed consolidated statements of operations for the three and nine months ended September 30, ~~2021~~2022 and ~~2020.~~2021. The balances within these accounts are less than $0.1 million, respectively.

8.7. STOCKHOLDERS’ EQUITY

Common Stock.

Pursuant to our Third Amended and Restated Certificate of Incorporation, as amended, we currently have 150,000,000 shares of common stock authorized for issuance. On December 20, 2018, the Company’s shareholders approved the proposal to authorize the Company’s Board of Directors to, in its discretion, amend the Company’s Third Amended and Restated Certificate of Incorporation to increase the total number of authorized shares of common stock from 150,000,000 shares to 250,000,000 shares. The Company has not yet ~~effected~~implemented this increase.

During the three and nine months ended September 30, 2022, the Company issued 26,529 and 26,795 shares of its common stock, respectively, in connection with the exercise of 26,529 and 26,795 warrants. The warrant exercises resulted in net cash proceeds to the Company of $11,000 during the nine months ended September 30, 2022.

During the three and nine months ended September 30, 2021, the Company issued 0zero and 74,000 shares of its common stock, respectively, in connection with the exercise of zero and 74,000 ~~warrants.~~warrants, respectively. The warrant exercises resulted in net cash proceeds to the Company of ~~0 and~~ $0.4 million during the ~~three and~~ nine months ended September 30, 2021 ~~respectively.~~

During the ~~three and~~ nine months ended September 30, 2021, the Company issued ~~0 and~~ 55,147 shares of its common stock ~~respectively,~~ in connection with consulting services of ~~0 and~~ approximately $0.2 ~~million, respectively.~~million.

During the three and nine months ended September 30, 2021, the Company issued 1,229 shares of its common stock, respectively, in connection with the exercise of 1,229 stock options. The stock option exercises resulted in net cash proceeds to the Company of $3,000 for the three and nine months ended September 30, 2021, respectively.

During the three and nine months ended September 30, 2020, the Company issued 0 and 3,908,145 shares of its common stock, respectively, in connection with the conversion of convertible notes, plus interest, totaling 0 and $2.2

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~~million, respectively. There were 0 shares issued in connection with the conversion of convertible notes during the three and nine months ended September 30, 2021. See Note 4 – Convertible Notes.~~

~~LP Purchase Agreement~~

On September 7, 2018, the Company entered into a purchase agreement (the “LP Purchase Agreement”) with Lincoln Park, pursuant to which Lincoln Park has agreed to purchase from the Company up to an aggregate of $10,000,000 of common stock of the Company (subject to certain limitations) from time to time over the term of the LP Purchase Agreement.

During the three and nine months ended September 30, 2020, we received 0 and $1.4 million, respectively, from the sale of 0 and 1,040,654 shares of common stock to Lincoln Park under the LP Purchase Agreement, respectively. The LP Purchase Agreement terminated during our second fiscal quarter of 2020.

LP 2020 Purchase Agreement

On March 26, 2020, the Company entered into a purchase agreement (the “LP 2020 Purchase ~~Agreement”) and a registration rights agreement (the “LP 2020 Registration Rights~~ Agreement”) with Lincoln Park pursuant to which Lincoln Park has agreed to purchase from us, from time to time, up to $10,000,000 of our common stock, subject to certain limitations, during the ~~24 month~~24-month term of the LP 2020 Purchase Agreement. ~~Pursuant to~~

During the ~~terms~~three and nine months ended September 30, 2021, we received approximately zero and $1.3 million, respectively, from the sale of ~~the LP 2020 Purchase Agreement, on the agreement date, the Company issued 250,000 shares of its common stock to Lincoln Park as consideration for its commitment to purchase~~zero and 500,000 shares of common stock, of the Company under the LP Purchase Agreement (the “LP 2020 Commitment Shares”). Pursuant to the terms of the LP 2020 Registration Rights Agreement, on March 27, 2020, as amended on April 8, 2020, the Company filed with the SEC a registration statement on Form S-1 to register for resale under the Securities Act of 1933, as amended, or the Securities Act, 1,770,000 shares of common stock, which includes the LP 2020 Commitment Shares, that have been or may be issuedrespectively, to Lincoln Park under the LP 2020 Purchase Agreement. The Form S-1 was declared effective by the SEC on April 13, 2020. As of June 22, 2020, all shares registered under this S-1 had been sold and/or issued to Lincoln Park. On June 26, 2020, the Company filed with the SEC a registration statement on Form S-1 to register for resale under the Securities Act of 1933, as amended, or the Securities Act, an additional 4,500,000 shares of common stock that have been or may be issued to Lincoln Park under the LP Purchase Agreement. The Form S-1 was amended on July 7, 2020 and declared effective by the SEC on July 7, 2020. For the three and nine months ended September 30, 2020, 2,060,000 shares, respectively, registered under this S-1 had been sold and/or issued to Lincoln Park. As of September 30, 2021, 3,460,000 shares registered under this S-1 had been sold and/or issued to Lincoln Park.

As of the date of this Quarterly Report on Form 10-Q, we have received an aggregate of $8.8 million from the sale of common stock to Lincoln Park under the LP 2020 Purchase Agreement, including 0 and $1.3 million from the sale of 0 and 500,000 shares of common stock, respectively, during the three and nine months ended September 30, 2021. The Company terminated the LP 2020 Purchase Agreement effective June 14, 2021.

At The Market Offering Agreement

On April 2, 2021, the Company entered into a sales agreement with A.G.P./Alliance Global Partners (“AGP”), pursuant to which the Company may offer and sell its common stock, par value $0.01 per share (the “Common Stock”) (the “Shares”), having aggregate sales proceeds of up to $22.0 million. Shares can be sold either directly to or through

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AGP as a sales agent (the “AGP Sales Agreement”), from time to time, in an “at the market offering” (as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended) of the Shares (the “ATM Offering”). The Company is limited in the number of shares it can sell in the ATM Offering due to the offering limitations currently applicable to the Company under General Instruction I.B.6. of Form S-3 and the Company’s public float as of the applicable date of such sales, as well as the number of authorized and unissued shares available for issuance, in accordance with the terms of the AGP Sales Agreement.

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The sale of our shares of Common Stock to or through AGP, will be made pursuant to the registration statement (the “Registration Statement”) on Form S-3 (File No. 333-237445), which was declared effective by the Securities and Exchange Commission (the “SEC”) on April 13, 2020, for an aggregate offering price of up to $50.0 million.

Under the AGP Sales Agreement, Shares may be sold by any method permitted by law deemed to be an “at the market offering.” AGP will also be able to sell shares of Common Stock by any other method permitted by law, including in negotiated transactions with the Company’s prior written consent. Upon delivery of a placement notice and subject to the terms and conditions of the AGP Sales Agreement, AGP is required to use its commercially reasonable efforts consistent with its normal trading and sales practices, applicable state and federal law, rules and regulations, and the rules of The Nasdaq Capital Market to sell the Shares from time to time based upon the Company’s instructions, including any price, time or size limits specified by the Company. AGP is not under any obligation to purchase any of the Shares on a principal basis pursuant to the AGP Sales Agreement, except as otherwise agreed by AGP and the Company in writing and expressly set forth in a placement notice. AGP’s obligations to sell the Shares under the AGP Sales Agreement are subject to satisfaction of certain conditions, including customary closing conditions. The Company is not obligated to make any sales of Shares under the AGP Sales Agreement and any determination by the Company to do so will be dependent, among other things, on market conditions and the Company’s capital raising needs.

The Company has agreed to pay AGP a cash fee of 3.0% of the aggregate gross proceeds from the sale of the Shares on the Company’s behalf pursuant to the AGP Sales Agreement. The AGP Sales Agreement contains representations, warranties and covenants that are customary for transactions of this type. In addition, the Company has provided AGP with customary indemnification and contribution rights. The Company has also agreed to reimburse AGP for certain specified expenses, including the expenses of counsel to AGP. The offering of the Shares pursuant to the AGP Sales Agreement will terminate upon the termination of the AGP Sales Agreement by AGP or the Company, as permitted therein.

During the three and nine months ended September 30, 2022, we received net proceeds of $0.1 million in each period from the sale of 85,023 shares of common stock through AGP, respectively. During the three and nine months ended September 30, 2021, we received net proceeds of 0zero and approximately $14.9 million, respectively, from the sale of 0zero and 4,501,000 shares of common stock through AGP, respectively. ~~There were 0 sales~~As of ~~common stock through AGP from October 1, 2021 through~~ the date of issuance of this Quarterly Report on Form ~~10-Q.~~10-Q, we have received an aggregate of $15.1 million in net proceeds from the sale of common stock through the AGP Sales Agreement, leaving us with $6.4 million available for future sales pursuant to the AGP Sales Agreement.

Preferred Stock.

The Company’s Board of Directors is authorized to issue up to 15,000,000 shares of preferred stock in one or more series, from time to time, with such designations, powers, preferences and rights and such qualifications, limitations and restrictions as may be provided in a resolution or resolutions adopted by the Board of Directors.

Series B Preferred Stock.

The Company filed a Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock (“Series B Preferred Stock”) with the State of Delaware, which designates 6,900 shares of our preferred stock as Series B Preferred Stock. The Series B Preferred Stock has a stated value of $1,000 per share and a par value of $0.01 per share. The Series B Preferred Stock includes a beneficial ownership blocker but has no dividend rights (except to the extent dividends are also paid on the common stock). On August 28, 2017, the Company completed an underwritten public offering ~~(the “August 2017 Offering”)~~ consisting of the Company’s Series B Preferred Stock and warrants.

The conversion price of the Series B Preferred Stock contains a down round feature. The Company will recognize the effect of the down round feature when it is triggered. At that time, the effect would be treated as a deemed dividend and as a reduction of income available to common shareholders in our basic earnings per share calculation.

The March 2020 Amendment, see Note 4 – Convertible Notes, triggered the down round feature of the Series B Preferred Stock and, as a result, the conversion price of the Company’s Series B Convertible Preferred Stock was automatically adjusted from $2.25 per share to $0.40 per share. In connection with the down round adjustment, the

2017

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The conversion price of the Series B Preferred Stock contains a down round feature. The Company ~~calculated an incremental beneficial conversion~~will recognize the effect of the down round feature ~~of approximately $3.3 million which was recognized~~when it is triggered. At that time, the effect would be treated as a deemed dividend ~~at time~~and as a reduction of ~~the down round adjustment (“Deemed Dividend A”).~~income available to common shareholders in our basic earnings per share calculation.

There were 0no conversions of Series B Preferred Stock during the three and nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. At September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had 6,900 shares of Series B Preferred Stock designated and issued and 47 shares of Series B Preferred Stock outstanding. Based on the stated value of $1,000 per share and a conversion price of $0.40 per share, the outstanding shares of Series B Preferred Stock at September 30, ~~2021~~2022 were convertible into 117,500 shares of common stock.

Common Stock Warrants.

The following represents a summary of the warrants outstanding as of September 30, ~~2021:~~2022:


			Underlying	Exercise				Underlying	Exercise
	Issue Year	Expiration	Shares	Price		Issue Year	Expiration	Shares	Price
Warrants
(1)	2017	June 2022	2,540	$	41.25	2017	October 2022	666	$	0.40
~~(1)~~(2)	2017	June 2022	500	$	7.50	2018	October 2022	7,207	$	112.50
~~(2)~~(3)	2017	June 2022	6,095	$	105.00	2018	April 2023	69,964	$	5.40
(3)	2017	August 2022	25,201	$	0.40	2018	April 2023	78,414	$	5.40
(4)	2017	August 2022	4,000	$	46.88	2018	October 2022	15,466	$	11.25
(5)	2017	August 2022	47,995	$	150.00	2018	July 2023	14,671	$	5.40
(5)	2017	August 2022	9,101	$	7.50	2018	July 2023	14,672	$	5.40
(6)	2017	August 2022	16,664	$	0.40
(6)	2017	August 2022	7,335	$	0.40
(5)						2018	August 2023	20,903	$	5.40
(5)						2018	August 2023	20,903	$	5.40
(5)						2018	September 2023	19,816	$	5.40
(5)						2018	September 2023	20,903	$	5.40
~~(9)~~(6)						2018	November 2023	75,788	$	5.40
~~(9)~~(6)						2018	December 2023	51,282	$	5.40
(7)	2017	October 2022	666	$	0.40	2019	April 2024	147,472	$	5.40
(8)	2018	October 2022	7,207	$	112.50	2019	May 2024	154,343	$	9.56
~~(9)~~(6)	2018	April 2023	69,964	$	5.40
~~(9)~~(6)	2018	April 2023	78,414	$	5.40
(10)	2018	October 2022	15,466	$	11.25
(11)	2018	July 2023	14,671	$	5.40
(11)	2018	July 2023	14,672	$	5.40
(11)	2018	August 2023	20,903	$	5.40
(11)	2018	August 2023	20,903	$	5.40
(11)	2018	September 2023	19,816	$	5.40
(11)	2018	September 2023	20,903	$	5.40
(12)	2018	November 2023	75,788	$	5.40
(12)	2018	December 2023	51,282	$	5.40
(13)	2019	April 2024	147,472	$	5.40
(14)	2019	May 2024	154,343	$	9.56
			831,901					712,470

(1)	~~These warrants were issued in connection with a June 2017 merger transaction (the “Merger”).~~

~~(2)~~

~~These warrants were issued in connection with the Merger.~~

~~(3)~~

These warrants were issued in connection with an underwritten public offering completed on August 28, 2017 (the “August 2017 Offering”) and are the August 2017 Offering Warrants discussed below.

~~(4)~~

~~These warrants were issued in connection with the August 2017 Offering.~~

~~(5)~~

~~These warrants were issued in connection with the conversion of our Series A Senior stock, at the time of the closing of the August 2017 Offering.~~

~~(6)~~

These warrants were issued in connection with the conversion of convertible bridge notes, at the time of the closing of the August 2017 Offering, and are the Note Conversion Warrants discussed below.

~~(7)~~

These warrants were issued in connection with the waiver of default the Company received in the fourth quarter of 2017 in connection with the Convertible Promissory ~~Notes and are the Convertible Promissory Note Warrants discussed below.~~Notes.

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~~(8)~~(2)

These warrants were issued in connection with ~~the Debt Obligation~~certain debt obligation settlement ~~agreements and are the Creditor Warrants discussed below.~~agreements.

~~(9)~~(3)

These warrants were issued in connection with a 2018 securities purchase agreement, as amended, (the “2018 Note Agreement”).

(4)	These warrants were issued in connection with the 2018 Note ~~Agreement and are the April 2018 Warrants discussed below.~~Agreement.

~~(10)~~(5)

These warrants were issued in connection with the 2018 Note ~~Agreement and are the Advisor Warrants discussed below.~~Agreement.

~~(11)~~(6)

These warrants were issued in connection with the 2018 Note ~~Agreement and are the Q3 2018 Warrants discussed below.~~Agreement.

~~(12)~~(7)

These warrants were issued in connection with the 2018 Note ~~Agreement and subsequent Amendment Agreement and are the Q4 2018 Warrants discussed below.~~Agreement.

~~(13)~~(8)

These warrants were issued in connection with ~~the 2018 Note Agreement and subsequent Amendment No. 2 Agreement and are the April 2019 Warrants discussed below.~~

~~(14)~~

~~These warrants were~~convertible notes issued in ~~connection with the~~ May 2019 (the “May 2019 Bridge ~~Notes and are the May 2019 Warrants discussed below.~~Notes”).

During the three months ended September 30, 2022 and 2021, 83,501 and ~~2020, 0~~zero warrants expired, respectively. During the nine months ended September 30, 2022 and 2021, 92,626 and ~~2020,~~ 239 ~~and 2,420~~ warrants expired, respectively. These warrants had been issued in connection with transactions which were completed ~~between October 2014~~in 2016 and ~~January 2016.~~2017.

During the nine months ended September 30, 2021, 357 warrants were settled for cash of approximately $0.1 million. For further discussion, see the 2016 Warrant Liability in Note 98 – Fair Value.

~~August 2017 Offering Warrants~~There were 26,529 and 26,795 w

~~In connection with~~arrants exercised during the ~~August 2017 Offering,~~three and nine months ended September 30, 2022 for proceeds to the Company ~~issued 178,666 warrants at an exercise price~~ of $45.00 per share, which contain a down round provision (the “August 2017 Offering Warrants”). The August 2017 Offering Warrants were exercisable immediately and expire 5 years from date of issuance.

~~As a result of~~approximately $11,000, respectively. During the March 2020 Amendment, the exercise price of the August 2017 Offering Warrants was adjusted from $2.25 per share to $0.40 per share. At the time the exercise price was adjusted, the Company calculated the fair value of the down round provision on the warrants to be approximately $6,000 and recorded this as a deemed dividend (“Deemed Dividend B”).

~~Note Conversion Warrants~~

Upon the closing of the August 2017 Offering, the Company issued 23,999 warrants to purchase the Company’s common stock (the “Note Conversion Warrants”). The Note Conversion Warrants have an exercise price of $45.00 per share and contain a down round provision.

As a result of the March 2020 Amendment, the exercise price of the Note Conversion Warrants was adjusted from $2.25 per share to $0.40 per share. At the time the exercise price was adjusted, the Company calculated the fair value of the down round provision on the warrants to be approximately $5,000 and recorded this as a deemed dividend (“Deemed Dividend C”).

~~Convertible Promissory Note Warrants~~

~~The Convertible Promissory Note Warrants had an original exercise price of $45.00 per share and contain a down round provision.~~

As a result of the March 2020 Amendment, the exercise price of the Convertible Promissory Note Warrants was adjusted from $2.25 per share to $0.40 per share. At the time the exercise price was adjusted, the Company calculated the fair value of the down round provision on the warrants to be less than $1,000 and recorded this as a deemed dividend (“Deemed Dividend D”).nine months ended September 30, 2022,

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~~Creditor Warrants~~

In the fourth quarter of 2017, the Company entered into Settlement Agreements with the Creditors pursuant to which the Company agreed to issue, to certain of its Creditors, 7,207 Creditor Warrants (the “Creditor Warrants”) to purchase 7,207 sharesintrinsic value of the ~~Company’s common stock at an exercise price of $112.50 per share. The Creditor Warrants were issued in February 2018.~~

~~April 2018 Warrants~~w

In connection with the issuance of Bridge Notes in April 2018, the Company issued 243,224 warrants at an exercise price of $11.25 per share at time of issuance. At issuance, half of these April 2018 Warrants had a five-year term and half had a one-year term. In April 2019, as a result of the Amendment No.2 Agreement, the exercise pricearrants ~~of the April 2018 Warrants~~exercised was ~~adjusted to $5.40 per share and all April 2018 Warrants that had a one-year term were amended to have a five-year term.~~

less than $0.1 million. There were ~~43,138 April 2018 Warrants~~74,000 warrants exercised during the nine months ended September 30, 2021 for proceeds to the Company of ~~approximately~~ $0.2 million. During the nine months ended September 30, 2021, the intrinsic value of the ~~April 2018 Warrants~~warrants exercised was ~~less than~~ $0.1 million.

~~Advisor Warrants~~

~~At the time of the 2018 Note Agreement, the Company issued 15,466 warrants with an exercise price of $11.25 per share to a financial advisor.~~

~~Q3 2018 Warrants~~

In connection with the issuance of Bridge Notes during the third quarter of 2018, the Company issued 196,340 warrants with an exercise price of $11.25 per share at time of issuance (the “Q3 2018 Warrants”). At the time of issuance, half of these Q3 2018 Warrants had a five-year term and half had a one-year term. ~~In September 2018, the exercise price was modified to $7.50 per share.~~ ~~In April 2019, as a result of the Amendment No.2 Agreement, the exercise price~~ ~~of the Q3 2018 Warrants was adjusted to $5.40 per share and all Q3 2018 Warrants that had a one-year term were amended to have a five-year~~ ~~term~~.

There were 30,862 Q3 2018 Warrants exercised during the nine months ended September 30, 2021 for proceeds to the Company of approximately $0.2 million. During the nine months ended September 30, 2021, the intrinsic value of the Q3 2018 Warrants exercised was less than $0.1 million.

~~Q4 2018 Warrants~~

In connection with the issuance Bridge Notes during the fourth quarter of 2018, the Company issued 300,115 warrants with an exercise price of $5.40 per share at time of issuance and a five-year term (the “Q4 2018 Warrants”).

~~April 2019 Warrants~~

~~In connection with the issuance of the April 2019 Bridge Notes, the Company issued 147,472 warrants with an exercise price of $5.40 per share and a five-year term.~~

~~May 2019 Warrants~~

~~In connection with the issuance of the May 2019 Bridge Notes, the Company issued 154,343 warrants with an exercise price of $5.40 per share and a five-year term.~~

~~Table of Contents~~

Deemed Dividends

~~As discussed above, certain~~Certain of our preferred stock and warrant issuances contain down round provisions which require us to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic earnings per share.

There were 0no deemed dividends during the three and nine months ended September 30, ~~2021 or the three months ended September 30, 2020. The following represents a summary of the dividends recorded for the nine months ended September 30, 2020:~~

Amount Recorded
Deemed Dividends

(in thousands)

Dividends resulting from the March 2020 Amendment

Deemed Dividend A

$
3,333
Deemed Dividend B

6
Deemed Dividend C

5
Deemed Dividend D

*

For the nine months ended September 30, 2020

$
3,344

* Represents less than one thousand dollars2022 and 2021.

8. FAIR VALUE

FASB guidance on fair value measurements, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements for our financial assets and liabilities, as well as for other assets and liabilities that are carried at fair value on a recurring basis in our condensed consolidated financial statements.

FASB guidance establishes a three-level fair value hierarchy based upon the assumptions (inputs) used to price assets or liabilities. The three levels of inputs used to measure fair value are as follows:

Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2—Observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets; and

Level 3—Unobservable inputs reflecting our own assumptions and best estimate of what inputs market participants would use in pricing the asset or liability.

Common Stock Warrant Liabilities.

Certain of our issued and outstanding warrants to purchase shares of common stock do not qualify to be treated as equity and, accordingly, are recorded as a liability. We are required to record these instruments at fair value at each reporting date and changes are recorded as a non-cash adjustment to earnings. The gains or losses included in earnings are reported in other income (expense) in our condensed consolidated statements of operations.

2016 Warrant Liability

The Company has a warrant liability related to warrants issued in January 2016 (the “2016 Warrant Liability”) and it represents the fair value of such warrants, of which, 357 warrants were settled for cash of approximately $0.1 million in January 2021. The balance of the 2016 Warrant Liability was 0zero as of September 30, ~~2021.~~2022 and December 31, 2021, respectively.

Bridge Note Warrant Liabilities

During 2018 and 2019, the Company issued warrants in connection with the issuance of convertible notes. All of these warrants issuances were classified as warrant liabilities (the “Bridge Note Warrant Liabilities”).

The Bridge Note Warrant Liabilities are considered Level 3 financial instruments and were valued using the Black Scholes model. As of September 30, 2022, Bridge Note Warrant Liabilities outstanding were the result of convertible note issuances on eight different dates in 2018 and 2019. The assumptions used in the valuation of the Bridge Note Warrant Liabilities include the following ranges: remaining life to maturity of 0.1 to 1.6 years; volatility rate of 74% to 115%; and

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~~The 2016 Warrant Liability is considered a Level 3 financial instrument and was valued using the Black Scholes model.~~risk-free rate of 2.79% to 4.14%. As of December 31, 2020, assumptions and inputs used in the valuation of the 2016 Warrant Liability include: remaining life to maturity of less than one month; annual volatility of 135%; and a risk-free interest rate of 0.08%.

~~Bridge Note Warrant Liabilities~~

During 2018 and 2019, the Company issued warrants in connection with the issuance of Bridge Notes. All of these warrants issuances were classified as warrant liabilities (the “Bridge Note Warrant Liabilities”). See Note 4 - Convertible Notes for further discussion.

~~The Bridge Note Warrant Liabilities are considered Level 3 financial instruments and were valued using the Black Scholes model. As of September 30,~~ 2021, assumptions used in the valuation of the Bridge Note Warrant Liabilities include: remaining life to maturity of ~~0.6~~0.3 to ~~2.6~~2.4 years; volatility rate of ~~169%~~61% to ~~206%~~199%; and risk free rate of ~~0.05%~~0.06 to 0.41%. As of December 31, 2020, assumptions used in the valuation of the Bridge Note Warrant Liabilities include: remaining life to maturity of 1.3 to 3.4 years; volatility rate of 162% to 201%; and risk free rate of 0.10% to 0.17%0.73%.

During the three and nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, the change in the fair value of the warrant liabilities measured using significant unobservable inputs (Level 3) were comprised of the following:


Dollars in Thousands
	Three Months Ended September 30, 2022
	Bridge Note		Total Warrant
	Warrant Liabilities		Liabilities
Beginning balance at July 1	$	87	$	87
Total gains:
Revaluation recognized in earnings		(59)		(59)
Balance at September 30	$	28	$	28

	Three Months Ended September 30, 2021
	Bridge Note		Total Warrant
	Warrant Liabilities		Liabilities
Beginning balance at July 1	$	2,207	$	2,207
Total losses:
Revaluation recognized in earnings		(578)		(578)
Deductions – warrant liability settlement		–		–
Balance at September 30	$	1,629	$	1,629

Dollars in Thousands

Three Months Ended September 30, 2021


2016 Warrant

Bridge Note

Total Warrant

Liability

Warrant Liabilities

Liabilities
Beginning balance at July 1

$
–

$
2,207

$
2,207
Total gains:






Revaluation recognized in earnings

–

(578)

(578)
Balance at September 30

$
–

$
1,629

$
1,629

Three Months Ended September 30, 2020


2016 Warrant

Bridge Note

Total Warrant

Liability

Warrant Liabilities

Liabilities
Beginning balance at July 1

$
39

$
735

$
774
Total losses:






Revaluation recognized in earnings

63

794

857
Balance at September 30

$
102

$
1,529

$
1,631


Dollars in Thousands
	Nine Months Ended September 30, 2021								Nine Months Ended September 30, 2022
	2016 Warrant		Bridge Note		Total Warrant				Bridge Note		Total Warrant
	Liability		Warrant Liabilities		Liabilities				Warrant Liabilities		Liabilities
Beginning balance at January 1	$	130	$	1,195	$	1,325			$	606	$	606
Total losses:
Revaluation recognized in earnings		–		434		434				(578)		(578)
Deductions – warrant exercises		(130)		–		(130)
Deductions – warrant exercises and write-offs										–		–
Balance at September 30	$	–	$	1,629	$	1,629			$	28	$	28

	Nine Months Ended September 30, 2020						Nine Months Ended September 30, 2021
	2016 Warrant		Bridge Note		Total Warrant		2016 Warrant		Bridge Note		Total Warrant
	Liability		Warrant Liabilities		Liabilities		Liability		Warrant Liabilities		Liabilities
Beginning balance at January 1	$	70	$	1,268	$	1,338	$	130	$	1,195	$	1,325
Total losses:
Revaluation recognized in earnings		32		261		293		–		434		434
Deductions – warrant liability settlement								(130)		–		(130)
Balance at September 30	$	102	$	1,529	$	1,631	$	–	$	1,629	$	1,629

9. EQUITY INCENTIVE PLAN

The Company currently issues stock awards under its 2017 Stock Option and Incentive Plan, as amended (the “2017 Plan”) which will expire on June 5, 2027. The shares authorized for issuance under the 2017 Plan were 3,852,853 at September 30, 2022, of which 152,842 were available for future grant. The shares authorized under the 2017 Plan are

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~~10. EQUITY INCENTIVE PLAN~~

The Company currently issues stock awards under its 2017 Stock Option and Incentive Plan, as amended (the "2017 Plan") which will expire on June 5, 2027. The shares authorized for issuance under the 2017 Plan were 2,717,431 at September 30, 2021, of which 68,767 were available for future grant. The shares authorized under the 2017 Plan were increased by 925,000 shares by stockholder vote on June 18, 2021 and are subject to annual increases on January 1 by 5% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or such lessor number of shares determined by the Company’s Board of Directors or Compensation Committee. During the nine months ended September 30, ~~2021,~~2022, the shares authorized for issuance increased by ~~1,803,845~~1,135,422 shares.

Stock Options.

The Company accounts for all stock-based compensation payments to employees and directors, including grants of employee stock options, at fair value at the date of grant and expenses the benefit in operating expense in the condensed consolidated statements of operations over the service period of the awards. The Company records the expense for stock-based compensation awards subject to performance-based milestone vesting over the remaining service period when management determines that achievement of the milestone is probable based on the expected satisfaction of the performance conditions as of the reporting date. The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option pricing model, which requires various assumptions including estimating stock price volatility, expected life of the stock option, risk free interest rate and estimated forfeiture rate.

During the nine months ended September 30, ~~2021,~~2022, the Company granted stock options to purchase up to ~~1,907,347~~1,114,000 shares of common stock at a weighted average exercise price of ~~$2.89~~$1.51 per share. These awards have vesting periods of up to four years and had a weighted average grant date fair value of $1.45. The fair value calculation of options granted during the nine months ended September 30, 2022 used the follow assumptions: risk free interest rates of 1.60% to 3.55%, based on the U.S. Treasury yield in effect at the time of grant; expected life of six years; and volatility of 166% based on historical volatility of the Company’s common stock over a time that is consistent with the expected life of the option.

The following table summarizes stock option activity under our plans during the nine months ended September 30, ~~2021:~~2022:


	Number of	Weighted-Average		Number of	Weighted-Average
	Options	Exercise Price		Options	Exercise Price
Outstanding at January 1, 2021	822,992	$	4.46
Outstanding at January 1, 2022				2,635,287	$	3.38
Granted	1,907,347		2.89	1,114,000		1.51
Exercised	(1,229)		2.04
Forfeited	(81,594)		2.83	(50,575)		2.43
Outstanding at September 30, 2021	2,647,516	$	3.38
Exercisable at September 30, 2021	633,027	$	4.91
Outstanding at September 30, 2022				3,698,712	$	2.83
Exercisable at September 30, 2022				1,998,581	$	3.33

As of September 30, ~~2021,~~2022, there were ~~1,972,128~~3,229,938 options that were vested or expected to vest with anzero aggregate intrinsic value ~~of $0.7 million~~ and a remaining weighted average contractual life of ~~8.9~~8.4 years.

During the nine months ended September 30, ~~2020,~~2021, there were ~~393,050~~1,907,347 options granted with a weighted average exercise price of ~~$1.99~~$2.89 per share, ~~and 75,135~~81,594 options forfeited with a weighted average exercise price of ~~$13.86~~$2.83 per ~~share.~~share and 1,229 options exercised with a weighted average exercise price of $2.04.

Based on Company policy, stock options will become 100% vested in the event of an employee retirement, with retirement defined as someone who has attained the age of 65 and has served as an employee for the three-year period immediately preceding the retirement date. In connection with the retirement of a former employee in March 2022, the Company accelerated the vesting of shares of previously unvested stock options pursuant to the terms of certain Company stock option agreements previously issued between March 2019 and January 2022. During the nine months ended September 30, 2022, the Company accelerated 481,637 shares of previously unvested stock options and recorded $1.1 million of non-cash stock-based compensation expense for the accelerated awards. The Company also extended the remaining contractual term of all outstanding stock options of the former employee as of the retirement date. The Company determined this to be a modification of the stock options which would result in incremental fair value. Management calculated the change in fair value due to the modification to be a non-cash stock-based compensation expense of $0.5

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million which is included within operating expense in the accompanying statements of operations during the nine months ended September 30, 2022.

For the three and nine months ended September 30, 2022, we recorded non-cash stock-based compensation expense for all stock awards of $0.7 million and $3.4 million, respectively, within operating expense in the accompanying statements of operations. For the three and nine months ended September 30, 2021, we recorded compensation expense for all stock awards of $0.5 million and $1.3 million, respectively, within operating expense in the accompanying statements of ~~operations. For the three and nine months ended September 30, 2020, we recorded compensation expense for all stock awards of $0.2 million and $0.5 million, respectively.~~operation. As of September 30, ~~2021,~~2022, the unrecognized compensation expense related to unvested stock awards was ~~$5.4~~$3.5 million, which is expected to be recognized over a weighted-average period of ~~3.0~~2.7 years.

~~11.~~10. SALES SERVICE REVENUE, NET AND ACCOUNTS RECEIVABLE

ASC Topic 606, “Revenue from contracts with customers”

The Company follows the guidance of ASC 606 for the recognition of revenue from contracts with customers to transfer goods and services. The Company performed a comprehensive review of its existing revenue arrangements following the five-step model:

~~Table of Contents~~

Step 1: Identification of the contract with the customer. Sub-steps include determining the customer in a ~~contract; Initial~~contract, initial contract identification and ~~determine~~determining if multiple contracts should be combined and accounted for as a single transaction.

Step 2: Identify the performance obligation in the contract. Sub-steps include identifying the promised goods and services in the contract and identifying which performance obligations within the contract are distinct.

Step 3: Determine the transaction price. Sub-steps include variable consideration, constraining estimates of variable consideration, the existence of a significant financing component in the contract, noncash consideration and consideration payable to a customer.

Step 4: Allocate transaction price. Sub-steps include assessing the amount of consideration to which the Company expects to be entitled in exchange for transferring the promised goods or services to the customer.

Step 5: Satisfaction of performance obligations. Sub-steps include ascertaining the point in time when an asset is transferred to the customer and when the customer obtains control of the asset upon which time the Company recognizes revenue.

Nature of Contracts and Customers

The Company’s contracts and related performance obligations are similar for its customers and the sales process for all customers starts upon the receipt of requisition forms from the customers for patient diagnostic testing and the execution of contracts for biomarker testing and clinical research. Payment terms for the services provided are 30 days, unless separately negotiated.

Diagnostic testing

Control of the laboratory testing services is transferred to the customer at a point in time. As such, the Company recognizes revenue for laboratory testing services at a point in time based on the delivery method (web-portal access or fax) for the patient’s laboratory report, per the contract.

Clinical research grants

Control of the clinical research services are transferred to the customer over time. The Company will recognize revenue utilizing the “effort based” method, measuring its progress toward complete satisfaction of the performance obligation.

Table of Contents

Biomarker testing and clinical project services

Control of the biomarker testing and clinical project services are transferred to the customer over time. The Company utilizes an “effort based” method of assessing performance and measures progress towards satisfaction of the performance obligation based upon the delivery of results.

The Company generates revenue from the provision of diagnostic testing provided to patients, biomarker testing provided to bio-pharma customers and clinical research grants funded by both bio-pharma customers and government health programs.

Reagents and other diagnostic products

Control of reagents and other diagnostic products are transferred to the customer at a point in time and, as such, the Company recognizes these revenues at a point in time based on the delivery method. These revenues include revenues from reagent sets for our HSRR program, COVID-19 antibody tests and other product sales and are included in other revenue in our condensed consolidated statements of operations.

~~Table of Contents~~

Equipment leasing

The Company accounts for sales-type leases within the scope of ASC 842, Leases, as ASC 606 specifically excludes leases from its guidance. The sales-type leases result in the derecognition of the underlying asset, the recognition of profit or loss on the sale, and the recognition of an investment in leased asset. Revenue from sales-type leases is recognized upfront on the commencement date of the lease and is included in other revenue in our condensed consolidated statements of operations. For the three ~~and nine~~ months ended September 30, 2022 and 2021, revenue from sales-type leases was zero and less than $0.1 million, respectively. ~~There was 0 revenue from sales-type leases for~~For the ~~three and~~ nine months ended September 30, ~~2020.~~2022 and 2021, revenue from sales-type leases was zero and $0.1 million, respectively.

Disaggregation of Revenues by Transaction Type

We operate in 1one business segment and, therefore, the results of our operations are reported on a consolidated basis for purposes of segment reporting, consistent with internal management reporting. Service revenue, net for the three and nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 was as follows:


	For the Three Months Ended September 30,												For the Three Months Ended September 30,
(dollars in thousands)	Diagnostic Testing				Biomarker Testing				Total				Diagnostic Testing				Biomarker Testing				Total
	2021		2020		2021		2020		2021		2020		2022		2021		2022		2021		2022		2021
Medicaid	$	4	$	15	$	—	$	—	$	4	$	15	$	12	$	4	$	—	$	—	$	12	$	4
Medicare		942		811		—		—		942		811		936		942		—		—		936		942
Self-pay		65		196		—		—		65		196		109		65		—		—		109		65
Third party payers		952		950		—		—		952		950		1,003		952		—		—		1,003		952
Contract diagnostics		—		—		35		26		35		26		—		—		—		35		—		35
Service revenue, net	$	1,963	$	1,972	$	35	$	26	$	1,998	$	1,998	$	2,060	$	1,963	$	—	$	35	$	2,060	$	1,998


	For the Nine Months Ended September 30,												For the Nine Months Ended September 30,
(dollars in thousands)	Diagnostic Testing				Biomarker Testing				Total				Diagnostic Testing				Biomarker Testing				Total
	2021		2020		2021		2020		2021		2020		2022		2021		2022		2021		2022		2021
Medicaid	$	35	$	40	$	—	$	—	$	35	$	40	$	39	$	35	$	—	$	—	$	39	$	35
Medicare		2,935		1,979		—		—		2,935		1,979		2,986		2,935		—		—		2,986		2,935
Self-pay		181		332		—		—		181		332		206		181		—		—		206		181
Third party payers		2,773		2,313		—		—		2,773		2,313		3,060		2,773		—		—		3,060		2,773
Contract diagnostics		—		—		56		408		56		408		—		—		—		56		—		56
Service revenue, net	$	5,924	$	4,664	$	56	$	408	$	5,980	$	5,072	$	6,291	$	5,924	$	—	$	56	$	6,291	$	5,980

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Revenue from the Medicare and Medicaid programs account for a portion of the Company’s patient diagnostic service revenue. Laws and regulations governing those programs are extremely complex and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change by a material amount in the near term.

Revenue Recognition

Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price using the expected value method based on historical experience. The Company does not typically enter arrangements where multiple contracts can be combined as the terms regarding services are generally found within a single agreement/requisition form. The Company derives its revenues from the following types of transactions: diagnostic testing (“Diagnostic”), revenues from the Company’s ICP technology and bio-pharma projects encompassing genetic diagnostics (collectively “Biomarker”), revenues from clinical research grants from state and federal research programs and diagnostic product sales, including revenues from equipment leases and reagent sales associated with our HSRR program.

~~Table of Contents~~

Deferred revenue

Deferred revenue, or unearned revenue, refers to advance payments for products or services that are to be delivered in the future. The Company records such prepayment of unearned revenue as a liability, as revenue that has not yet been earned, but represents products or services that are owed to a customer. As the product or service is delivered over time, the Company recognizes the appropriate amount of revenue from deferred revenue. For the period ended September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the deferred revenue was ~~$148,000~~$13,000 and ~~$6,000,~~$18,000, respectively.

Contractual Allowances and Adjustments

We are reimbursed by payers for services we provide. Payments for services covered by payers average less than billed charges. We monitor revenue and receivables from payers and record an estimated contractual allowance for certain revenue and receivable balances as of the revenue recognition date to properly account for anticipated differences between amounts estimated in our billing system and amounts ultimately reimbursed by payers. Accordingly, the total revenue and receivables reported in our condensed consolidated financial statements are recorded at the amounts expected to be received from these payers. For service revenue, the contractual allowance is estimated based on several criteria, including unbilled claims, historical trends based on actual claims paid, current contract and reimbursement terms and changes in customer base and payer/product mix. The billing functions for the remaining portion of our revenue are contracted and fixed fees for specific services and are recorded without an allowance for contractual ~~discounts.~~discounts. The following table presents our revenues initially recognized for each associated payer class during the three and nine months ended September 30, ~~2021~~2022 and ~~2020~~2021.


	For the Three Months Ended September 30,												For the Three Months Ended September 30,
(dollars in thousands)					Contractual Allowances and				Revenues, net of Contractual								Contractual Allowances and				Revenues, net of Contractual
	Gross Revenues				adjustments				Allowances and adjustments				Gross Revenues				adjustments				Allowances and adjustments
	2021		2020		2021		2020		2021		2020		2022		2021		2022		2021		2022		2021
Medicaid	$	4	$	15	$	—	$	—	$	4	$	15	$	12	$	4	$	—	$	—	$	12	$	4
Medicare		942		811		—		—		942		811		936		942		—		—		936		942
Self-pay		65		196		—		—		65		196		109		65		—		—		109		65
Third party payers		3,313		3,188		(2,361)		(2,238)		952		950		3,486		3,313		(2,483)		(2,361)		1,003		952
Contract diagnostics		35		26		—		—		35		26		—		35		—		—		—		35
		4,359		4,236		(2,361)		(2,238)		1,998		1,998		4,543		4,359		(2,483)		(2,361)		2,060		1,998
Other		141		51		—		—		141		51		235		141		—		—		235		141
	$	4,500	$	4,287	$	(2,361)	$	(2,238)	$	2,139	$	2,049	$	4,778	$	4,500	$	(2,483)	$	(2,361)	$	2,295	$	2,139

For the Nine Months Ended September 30,
(dollars in thousands)

Contractual Allowances and

Revenues, net of Contractual

Gross Revenues

adjustments

Allowances and adjustments


2021

2020

2021

2020

2021

2020
Medicaid

$
35

$
40

$
—

$
—

$
35

$
40
Medicare

2,935

1,979

—

—

2,935

1,979
Self-pay

181

335

—

(3)

181

332
Third party payers

9,670

7,944

(6,897)

(5,631)

2,773

2,313
Contract diagnostics

56

408

—

—

56

408

12,877

10,706

(6,897)

(5,634)

5,980

5,072
Other

514

104

—

—

514

104

$
13,391

$
10,810

$
(6,897)

$
(5,634)

$
6,494

$
5,176

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	For the Nine Months Ended September 30,
(dollars in thousands)					Contractual Allowances and				Revenues, net of Contractual
	Gross Revenues				adjustments				Allowances and adjustments
	2022		2021		2022		2021		2022		2021
Medicaid	$	39	$	35	$	—	$	—	$	39	$	35
Medicare		2,986		2,935		—		—		2,986		2,935
Self-pay		206		181		—		—		206		181
Third party payers		10,664		9,670		(7,604)		(6,897)		3,060		2,773
Contract diagnostics		–		56		—		—		—		56
		13,895		12,877		(7,604)		(6,897)		6,291		5,980
Other		977		514		—		—		977		514
	$	14,872	$	13,391	$	(7,604)	$	(6,897)	$	7,268	$	6,494

Allowance for Doubtful Accounts

The Company provides for a general allowance for collectability of services when recording net sales. The Company has adopted the policy of recognizing net sales to the extent it expects to collect that amount. Reference is made to FASB 954-605-45-5 and ASU 2011-07, Health Care Entities: Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debt, and the Allowance for Doubtful Accounts. The change in the allowance for doubtful accounts is directly related to the increase in patient service revenues. The following table presents our reported revenues net of the collection allowance and adjustments for the three and nine months ended September 30, ~~2021~~2022 and ~~2020.~~2021.


	For the Three Months Ended September 30,												For the Three Months Ended September 30,
	Revenues, net of												Revenues, net of
(dollars in thousands)	Contractual Allowances				Allowances for doubtful								Contractual Allowances				Allowances for doubtful
	and adjustments				accounts				Total				and adjustments				accounts				Total
	2021		2020		2021		2020		2021		2020		2022		2021		2022		2021		2022		2021
Medicaid	$	4	$	15	$	(3)	$	(15)	$	1	$	—	$	12	$	4	$	(6)	$	(3)	$	6	$	1
Medicare		942		811		(47)		(121)		895		690		936		942		(24)		(47)		912		895
Self-pay		65		196		—		—		65		196		109		65		—		—		109		65
Third party payers		952		950		157		(286)		1,109		664		1,003		952		(50)		157		953		1,109
Contract diagnostics		35		26		—		—		35		26		—		35		—		—		—		35
		1,998		1,998		107		(422)		2,105		1,576		2,060		1,998		(80)		107		1,980		2,105
Other		141		51		—		—		141		51		235		141		—		—		235		141
	$	2,139	$	2,049	$	107	$	(422)	$	2,246	$	1,627	$	2,295	$	2,139	$	(80)	$	107	$	2,215	$	2,246


	For the Nine Months Ended September 30,												For the Nine Months Ended September 30,
	Revenues, net of												Revenues, net of
(dollars in thousands)	Contractual Allowances				Allowances for doubtful								Contractual Allowances				Allowances for doubtful
	and adjustments				accounts				Total				and adjustments				accounts				Total
	2021		2020		2021		2020		2021		2020		2022		2021		2022		2021		2022		2021
Medicaid	$	35	$	40	$	(2)	$	(40)	$	33	$	—	$	39	$	35	$	(19)	$	(2)	$	20	$	33
Medicare		2,935		1,979		(36)		(296)		2,899		1,683		2,986		2,935		(75)		(36)		2,911		2,899
Self-pay		181		332		—		—		181		332		206		181		—		—		206		181
Third party payers		2,773		2,313		(42)		(689)		2,731		1,624		3,060		2,773		(153)		(42)		2,907		2,731
Contract diagnostics		56		408		—		—		56		408		—		56		—		—		—		56
		5,980		5,072		(80)		(1,025)		5,900		4,047		6,291		5,980		(247)		(80)		6,044		5,900
Other		514		104		—		—		514		104		977		514		—		—		977		514
	$	6,494	$	5,176	$	(80)	$	(1,025)	$	6,414	$	4,151	$	7,268	$	6,494	$	(247)	$	(80)	$	7,021	$	6,414

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Costs to Obtain or Fulfill a Customer Contract

Sales commissions are expensed when incurred because the amortization period would have been one year or less. These costs are recorded in operating expenses in the condensed consolidated statements of operations.

Shipping and handling costs are comprised of inbound and outbound freight and associated labor. The Company accounts for shipping and handling activities related to contracts with customers as fulfillment costs which are included in cost of sales in the condensed consolidated statements of operations.

Accounts Receivable

The Company has provided an allowance for potential credit losses, which has been determined based on management’s industry experience. The Company grants credit without collateral to its patients, most of who are insured under third party payer agreements.

The following summarizes the mix of receivables outstanding related to payer categories:


(dollars in thousands)	September 30, 2022		December 31, 2021
Medicaid	$	34	$	45
Medicare		1,064		727
Self-pay		279		139
Third party payers		1,680		2,111
Contract diagnostic services and other		91		159
	$	3,148	$	3,181
Less allowance for doubtful accounts		(2,193)		(2,484)
Accounts receivable, net	$	955	$	697

The following table presents the roll-forward of the allowance for doubtful accounts for the nine months ended September 30, 2022.


			Allowance for
			Doubtful
(dollars in thousands)			Accounts
Balance, January 1, 2022			$	(2,484)
Collection Allowance:
Medicaid	$	(19)
Medicare		(75)
Third party payers		(153)
		(247)
Bad debt expense	$	2
Total charges				(245)
Other				536
Balance, September 30, 2022			$	(2,193)

For the nine months ended September 30, 2022, the allowance for doubtful accounts was adjusted by $0.5 million due to the revaluation of fully reserved accounts receivable and customer credits at January 1, 2022. The adjustment had no effect on our net accounts receivable or total assets in our condensed consolidated balance sheets.

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~~The following summarizes the mix of receivables outstanding related to payer categories:~~

(dollars in thousands)

September 30, 2021

December 31, 2020
Medicaid

$
17

$
131
Medicare

492

1,054
Self-pay

94

276
Third party payers

1,102

3,373
Contract diagnostic services and other

168

53

$
1,873

$
4,887
Less allowance for doubtful accounts

(1,303)

(4,013)
Accounts receivable, net

$
570

$
874

~~The following table presents the roll-forward of the allowance for doubtful accounts for the nine months ended September 30, 2021.~~


			~~Allowance for~~
			~~Doubtful~~
~~(dollars in thousands)~~			~~Accounts~~
~~Balance, January 1, 2021~~			$	~~(4,013)~~
~~Collection Allowance:~~
~~Medicaid~~	$	~~(2)~~
~~Medicare~~		~~(36)~~
~~Third party payers~~		~~(42)~~
		~~(80)~~
~~Bad debt expense~~	$	~~(2)~~
~~Total charges~~				~~(82)~~
~~Write-offs~~				~~2,792~~
~~Balance, September 30, 2021~~			$	~~(1,303)~~

Customer Revenue and Accounts Receivable Concentration

Our customers are oncologists, hospitals, reference laboratories, physician-office laboratories, and pharma and biotech companies. Customers that accounted for 10% or greater of our net sales or accounts receivable for the identified periods is as follows:

Net sales

Accounts receivable, as of

Three Months Ended

Nine Months Ended

September 30,

September 30,

September 30,

December 31,

2021

2020

2021

2020

2021

2020

Customer A

*

*

*

*

22
%
*

* represents less than 10%

Net sales

Accounts receivable, as of

Three Months Ended

Nine Months Ended

September 30,

December 31,

2022

2021

2022

2021

2022

2021

Customer A

Customer B

* represents less than 10%

~~12.~~11. SUBSEQUENT EVENTS

The Company has evaluated events and transactions subsequent to September 30, ~~2021~~2022 through the date of this Quarterly Report on Form 10-Q, and any subsequent events are reported below.

Nasdaq Delisting Notice

On October 28, 2022, the ~~condensed consolidated financial statements were issued~~Company received a letter from The Nasdaq Stock Market LLC (“Nasdaq”), notifying it that for the past 30 consecutive business days, the closing bid price per share of its common stock was below $1.00, the minimum bid price requirement for continued listing on The Nasdaq Capital Market, as required by Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). As a result, the Company was notified by Nasdaq that it is not in compliance with the Bid Price Rule. Nasdaq has provided the Company with 180 calendar days, or until April 26, 2023, to regain compliance with the Bid Price Rule. This notification has no immediate effect on the Company’s listing on the Nasdaq Capital Market or on the trading of the Company’s common stock.

To regain compliance with the Bid Price Rule, the closing bid price of the Company’s common stock must meet or exceed $1.00 per share for a minimum of ten consecutive business days during the 180-calendar day grace period. If the Company’s common stock does not regain compliance with the Bid Price Rule during this grace period, it may be eligible for an additional period of 180 calendar days provided that the Company satisfies certain requirements. However, if Nasdaq determines that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, Nasdaq will provide notice that the Company’s securities will be subject to delisting.

The Company intends to monitor the closing bid price of its common stock and may, if appropriate, evaluate various courses of action to regain compliance with the Bid Price Rule. However, there ~~are~~can be no ~~other events~~assurance that the Company will be able to ~~report other than what has been disclosed in~~regain compliance with the ~~condensed consolidated financial statements.~~Bid Price Rule.

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

Forward-Looking Information

This Quarterly Report on Form 10-Q, including this Management’s Discussion and Analysis, contains forward-looking statements. These statements are based on management’s current views, assumptions or beliefs of future events and financial performance and are subject to uncertainty and changes in circumstances. Readers of this report should understand that these statements are not guarantees of performance or results. Many factors could affect our actual financial results and cause them to vary materially from the expectations contained in the forward-looking statements. These factors include, among other things: ~~the expected or potential impact of COVID-19 which is highly uncertain and will depend on future developments,~~ our expected revenue, income (loss), receivables, operating expenses, supplier pricing, availability and prices of raw materials, insurance reimbursements, product pricing, sources of funding operations and acquisitions, our ability to raise funds, sufficiency of available liquidity, the impact of inflation on our business, results of operations, or financial condition, the potential impact of COVID-19, future interest costs, future economic circumstances, business strategy, industry conditions, our ability to execute our operating plans, the success of our cost savings initiatives, competitive environment and related market conditions, our ability to comply with the listing requirements of The Nasdaq Capital Market, expected financial and other benefits from our organizational restructuring activities, geopolitical uncertainties with the ongoing Russia and Ukraine conflict, actions of governments and regulatory factors affecting our business, retaining key employees and other risks as described in our reports filed with the Securities and Exchange Commission. In some cases these statements are identifiable through the use of words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would” or the negative versions of these terms and other similar expressions.

You are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Actual results may differ materially from those suggested by the forward-looking statements that we make for a number of reasons, including those described in Part II, Item 1A, “Risk Factors,” of this Quarterly Report on Form 10-Q and our prior filings with the Securities and Exchange Commission.

We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

The following discussion should be read together with our condensed consolidated financial statements and related notes contained in this Quarterly Report on Form 10-Q and with the financial statements, related notes and Management’s Discussion and Analysis included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020,~~2021, which we filed with the Securities and Exchange Commission on March ~~29, 2020.~~30, 2022. Results for the three and nine months ended September 30, ~~2021~~2022 are not necessarily indicative of results that may be attained in the future.

Overview

We are a healthcare solutions company focused on cancer diagnostics. Our business mission is to address the pervasive problem of cancer misdiagnoses by developing solutions to mitigate the root causes of this problem in the form of diagnostic products, reagents and services. Misdiagnoses originate from aged commercial diagnostic cancer testing technologies, lack of subspecialized expertise, and sub-optimal laboratory processes that are needed in today’s diagnostic cancer testing in order to provide accurate, rapid, and resource-effective results to treat patients. Industry studies estimate 1 in 5 blood-cancer patients are misdiagnosed. As cancer diagnostic testing has evolved from cellular to molecular (genes and exons), laboratory testing has become extremely complex, requiring even greater diagnostic precision, attention to process and a more appropriate evaluation of the abundance of genetic data to effectively gather, consider, analyze and present information for the physician for patient treatment. Precipio sees cancer diagnostics ~~and reagent technology company providing~~as requiring a holistic approach to improve diagnostic data for improved interpretations with the intent to reduce misdiagnoses. By delivering diagnostic products, reagents and services that improve the accuracy and efficiency of diagnostics, leading to fewer misdiagnoses, we believe patient outcomes can be improved through the ~~oncology market. We have built and continue to develop a platform designed to eradicate the problem~~selection of misdiagnosis by harnessing the intellect, expertise and technologies developed in collaboration with academic institutions, and delivering quality diagnostic information to physicians and their patients worldwide. We operate a cancer diagnostic laboratory located in New Haven, Connecticut and have partnered with various academic institutions to capture the expertise, experience and technologies developed within academia to provide a better standard of cancer diagnostics and aim to solve the growing problem of cancer misdiagnosis. In support of this platform, we also operate a research and development facility in Omaha, Nebraska which focuses on the development of various technologies, among them our internally developed proprietary products IV-Cell and HemeScreen. To expand our product offering capabilities, the Omaha facility was recently CLIA and CAP certified in order to process a variety of commercial molecular tests previously referenced out and to further expand our capabilities and know-how in transitioning R&D lab generated technology into a commercial laboratory environment.

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~~services~~Furthermore, we believe that better patient outcomes will have a positive impact on healthcare expenses as misdiagnoses are reduced. Better Diagnostic Results – Better Patient Outcome – Lower Healthcare Expenditures.

To deliver its strategy, the Company has structured its organization in order to drive development of diagnostic products. Laboratory and R&D facilities located in New Haven, Connecticut and Omaha, Nebraska house development teams that collaborate on new products ~~directed at improving diagnostic outcomes~~ and services. The Company operates CLIA laboratories in both the New Haven, Connecticut and Omaha, Nebraska locations providing ~~physicians with options for targeted therapies.~~essential blood cancer diagnostics to office-based oncologists in many states nationwide. To deliver on our strategy of mitigating misdiagnoses we rely heavily on our CLIA laboratory to support R&D beta-testing of the products we develop, in a clinical environment.

In April 2020, we formed a Joint Venture with Poplar. Poplar provides specialized laboratory testing services to a nationwide client base of gastroenterologists, dermatologists, oncologists, urologists, gynecologists and their patients. The business purpose of the Joint Venture is to facilitate and capitalize on the combined capabilities, resources and healthcare industry relationships of its members by partnering, promoting and providing oncology services to ~~office based~~office-based physicians, hospitals and medical centers. Under the terms of the Joint Venture, Precipio SPV has a 49% ownership interest in the Joint Venture, with Poplar having a ~~51%~~51 % ownership. We have determined that we hold a variable interest in the Joint Venture and that we are the primary beneficiary of the Joint Venture. Due to this determination, we consolidate the Joint Venture. See Note 2 - Summary of Significant Accounting Policies to our condensed consolidated financial statements appearing elsewhere in this report for further discussion.

Recent Developments

~~Business Activities – HemeScreen~~

~~The HemeScreen Reagent Program (“HSSR”) offers oncology practices and hospitals diagnostic reagent sets of~~On September 1, 2022, we terminated the license agreement with Dana-Farber Cancer Institute, or Dana-Farber, pursuant to which we previously licensed our ~~patent-pending HemeScreen technology at significantly lower costs, while reducing the test reporting time from 7 to 10 days down to 1 day and improving patient care. The HSRR program provides~~ICE COLD PCR, or ICP, technology. Management does not believe that this termination will have a turn-key test offering together with an option to lease-to-own diagnostic testing equipment from the Company. In most practice settings, such hematologic cancer tests are referenced out as both the cost of equipment and the cost of the diagnostic reagents are prohibitive. By utilizingmaterial impact on our HSSR program the customer can generate in-house testing revenues through reagent purchase contracts and economical lease-to-own rates. Customers can generate in-house revenues and profits instead of sending out the same tests to large commercial reference laboratories. The HSSR customer also benefits from obtaining faster results, thus ultimately providing better patient care. During the first half of 2021, the Company began to recognize recurring revenues from its first few HSRR accounts.

~~Business Activities – COVID Testing~~

During the second quarter of 2021, the Company expanded access to its COVID-19 rapid antibody test by listing on Amazon.com’s healthcare website platform. The antibody test is manufactured in the USA by Nirmidas Biotech, of California. Precipio holds the exclusive rights to distribute this product on Amazon’s platform. The COVID-19 rapid antibody test may currently be purchased by any medical practitioner having a National Provider Identifier (“NPI”), hospitals, medical centers and other qualified medical POC providers.

business.

Going Concern

The condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America (“GAAP”) applicable for a going concern, which assume that the Company will realize its assets and discharge its liabilities in the ordinary course of business. The Company has incurred substantial operating losses and has used cash in its operating activities for the past several years. ~~As of~~For the nine months ended September 30, ~~2021,~~2022, the Company had a net loss of ~~$6.3 million, working capital of $11.4~~$9.9 million and net cash used in operating activities of ~~$5.2~~$6.2 million. As of September 30, 2022, the Company had an accumulated deficit of $90.0 million and working capital of $3.0 million. The Company’s ability to continue as a going concern over the next twelve months from the date ~~of issuance of this Quarterly Report on Form 10-Q~~the condensed consolidated financial statements were issued is dependent upon a combination of achieving its business plan, including generating additional revenue, ~~and avoiding potential business disruption due to COVID-19,~~ and raising additional financing to meet its debt obligations and paying liabilities arising from normal business operations when they come due.

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

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~~offering” (as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended) of the Shares (the “ATM Offering”)~~. The Company is limited in the number of shares it can sell in the ATM Offering due to the offering limitations currently applicable to the Company under General Instruction I.B.6. of Form S-3 and the Company’s public float as of the applicable date of such sales, as well as the number of authorized and unissued shares available for issuance, in accordance with the terms of the AGP Sales Agreement. The offer and sales of our shares of Common Stock to or through AGP, will be made pursuant to the registration statement (the “Registration Statement”) on Form S-3 (File No. 333-237445), which was declared effective by the Securities and Exchange Commission (the “SEC”) on April 13, 2020, for an aggregate offering price of up to $50.0 million. From April 2, 2021 through the date the condensed consolidated financial statements were issued, we have already received approximately ~~$15.4~~$15.6 million in gross proceeds through the AGP Sales Agreement from the sale of ~~4,501,000~~4,586,023 shares of common stock, leaving the Company an additional ~~$6.6~~$6.4 million available for future sales pursuant to the AGP Sales Agreement.

Notwithstanding the aforementioned circumstances, there remains substantial doubt about the Company’s ability to continue as a going concern over the next twelve months from the date of issuance of this Quarterly Report on Form 10-Q. There can be no assurance that the Company will be able to successfully achieve its initiatives summarized above in order to continue as a going concern. The accompanying condensed consolidated financial statements have been

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prepared assuming the Company will continue as a going concern and do not include any adjustments that might result should the Company be unable to continue as a going concern as a result of the outcome of this uncertainty.

Outlook - COVID-19 related

The COVID-19 outbreak, which spread worldwide in the first quarter of 2020, has caused significant business disruption. The extent of the impact of the ongoing COVID-19 pandemic on the ~~Company's~~Company’s operational and financial performance will depend on ~~certain developments, including~~future developments. While our laboratory operations resumed to near-normal capacity, we may continue to experience challenges in procuring materials and supplies in a consistently timely manner due to COVID-19-related supply chain issues. In addition, delays in the ~~duration and spread~~development of COVID-19 vaccines or the ~~outbreak, and impact on the Company's customers, employees and vendors, all~~deployment of vaccines which are ~~uncertain and cannot be predicted. These uncertainties~~approved or otherwise authorized for emergency use, a recurrence or “subsequent waves” of COVID-19 cases, or the discovery of vaccine-resistant COVID-19 variants, the emergence of subvariants, or the discovery of vaccine-resistant COVID-19 variants could ~~have a material adverse effect on our business, financial condition~~cause other widespread or ~~results of operations.~~more severe impacts. We have been actively monitoring the COVID-19 ~~situation~~pandemic and its impact on the global economy and the Company. As the global pandemic evolves, we will continue to monitor the extent to which COVID-19 impacts our revenues, expenses and ~~liquidity~~.liquidity.

Results of Operations for the Three Months Ended September 30, ~~2021~~2022 and ~~2020~~2021

Net Sales. Net sales were as follows:


	Dollars in Thousands								Dollars in Thousands
	Three Months Ended								Three Months Ended
	September 30,				Change				September 30,				Change
	2021		2020		$		%		2022		2021		$		%
Service revenue, net, less allowance for doubtful accounts	$	2,105	$	1,576	$	529	34	%	$	1,980	$	2,105	$	(125)	(6)	%
Other		141		51		90	176	%		235		141		94	67	%
Net Sales	$	2,246	$	1,627	$	619	38	%	$	2,215	$	2,246	$	(31)	(1)	%

Net sales for the three months ended September 30, ~~2021~~2022 were approximately $2.2 million, ~~an increase~~a decrease of ~~$0.6~~less than $0.1 million as compared to the same period in ~~2020.~~2021. During the three months ended September 30, ~~2021,~~2022, patient diagnostic service revenue ~~increased $0.5~~decreased $0.1 million as compared to the same period in ~~2020~~2021. This decrease was due to ana $0.2 million increase in ~~cases processed. This increase was the result of a lower~~ allowance for doubtful accounts recorded during the three months ended September 30, ~~2021~~2022 as compared to the prior year period, partially offset by a $0.1 million increase in revenue from patient diagnostic cases. The case revenue increased even though we processed fewer cases in the current year due to better reimbursement rates achieved for the tests billed in the current year period. We processed ~~1,103~~1,031 cases during the three months ended September 30, ~~2021~~2022 as compared to ~~1,135~~1,103 cases during the same period in ~~2020,~~2021, or a 3%6% decrease in cases. ~~Contract diagnostics~~Other revenue ~~of less than~~increased by $0.1 million for the three months ended September 30, ~~2021 was flat~~2022 as compared to the same period in ~~2020. Other revenue increased $0.1 million for the three months ended September 30, 2021 as compared to the same period in 2020, mostly resulting from increased revenue~~2021. The other revenues were primarily related to our HSRR program.

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Cost of Sales. Cost of sales includes material and supply costs for the patient tests performed, costs related to HSRR products and other direct costs (primarily personnel costs, pathologist interpretation costs and rent) associated with the operations of our laboratory. Cost of sales increased by ~~$0.5~~$0.1 million for the three months ended September 30, ~~2021~~2022 as compared to the same period in 2020. The increase included a $0.2 million increase in patient diagnostic costs and a $0.3 million increase in costs related to our HSRR program revenue as we increased personnel and other costs to support new customers2021..

Gross Profit. Gross profit and gross margins were as follows:


	Dollars in Thousands								Dollars in Thousands
	Three Months Ended								Three Months Ended
	September 30,				Margin %				September 30,				Margin %
	2021		2020		2021		2020		2022		2021		2022		2021
Gross Profit	$	528	$	377	24	%	23	%	$	436	$	528	20	%	24	%

Gross margin was ~~24%~~20% of total net sales, for the three months ended September 30, ~~2021,~~2022, as compared to ~~23%~~24% of total net sales for the same period in ~~2020.~~2021. Gross profit was approximately ~~$0.5~~$0.4 million and ~~$0.4~~$0.5 million during the

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three months ended September 30, 2022 and 2021, ~~and 2020,~~ respectively. The gross margin increased during the three months ended September 30, 2021, as compared to the prior year period, as a result of an increase in patient diagnostic case revenue partially offset by the increase in costs associated with our HSRR program as discussed above. We operate a fully staffed CLIA and CAP certified clinical pathology and molecular laboratory. As such, it is necessary to maintain appropriate staffing levels to provide industry standard laboratory processing and reporting to ordering physicians. An increase in case volume will enable our laboratory to yield economies of scale and to leverage fixed expenses. ~~We anticipate case volume and HSRR revenues to increase during the remainder of 2021 and into 2022 and for our costs per case to improve as additional economies of scale are possible~~.

Operating Expenses. Operating expenses primarily consist of personnel costs, professional fees, travel costs, facility costs, stock-based compensation costs and depreciation and amortization. Our operating expenses increased by ~~$0.2~~$0.7 million to ~~$3.0~~$3.7 million for the three months ended September 30, ~~2021~~2022 as compared to the same period in ~~2020.~~2021. The increase included ~~increases~~an increase of ~~$0.2 million in general and administrative expenses and $0.3 million in stock based compensation expenses, partially offset by a decrease of $0.3~~$0.5 million in sales and marketing expenses due mainly to increased personnel costs as we began to expand our product sales force, $0.2 million in research and development expenses due to increased personnel costs and operating supplies and $0.2 million in stock-based compensation expenses for the three months ended September 30, 2022 as compared to the prior year. These increases were partially offset by a $0.2 million decrease in general and administrative legal expenses.

During the three months ended September 30, 2022, we began to build out our product sales and support team and, as mentioned above, we incurred increased costs in our sales and marketing expenses as compared to prior periods. We also signed distribution agreements with two major US healthcare distributors who will be marketing and selling our HemeScreen products beginning in the fourth quarter 2022. In connection with these agreements and our anticipated product revenue growth in 2023, we expect sales and marketing expenses to increase in the coming quarters as we continue to build the infrastructure necessary to support increased product sales.

Other (Expense) Income. We recorded net other income of ~~$0.6~~$0.1 million and ~~net other expense of $0.9~~$0.6 million for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The ~~current year period other income of $0.6~~amount for both periods is primarily attributable to non-cash income recorded on warrant revaluations.

Results of Operations for the Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021

Net Sales. Net sales were as follows:


	Dollars in Thousands								Dollars in Thousands
	Nine Months Ended								Nine Months Ended
	September 30,				Change				September 30,				Change
	2021		2020		$		%		2022		2021		$		%
Service revenue, net, less allowance for doubtful accounts	$	5,900	$	4,047	$	1,853	46	%	$	6,044	$	5,900	$	144	2	%
Other		514		104		410	394	%		977		514		463	90	%
Net Sales	$	6,414	$	4,151	$	2,263	55	%	$	7,021	$	6,414	$	607	9	%

Net sales for the nine months ended September 30, ~~2021~~2022 were approximately ~~$6.4~~$7.0 million, an increase of ~~$2.3~~$0.6 million as compared to the same period in ~~2020.~~2021. During the nine months ended September 30, ~~2021,~~2022, despite the fact that we had a decrease in cases processed, patient diagnostic service revenue increased ~~$2.2~~$0.1 million as compared to the same period in ~~2020~~2021 due to ~~an increase~~better reimbursement rates achieved for the tests billed in ~~cases processed and a lower allowance for doubtful accounts that was recorded.~~the current year. We processed ~~3,354~~3,037 cases during the nine months ended September 30, ~~2021~~2022 as compared to ~~2,575~~3,354 cases during the same period in ~~2020,~~2021, or a ~~30% increase~~9% decrease in cases. ~~The increase in patient diagnostic service revenue was partially offset by a decrease of $0.4 million in service revenue from contract~~

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~~diagnostics for the nine months ended September 30, 2021 as compared to the same period in 2020.~~ Other revenue increased ~~$0.4~~$0.5 million for the nine months ended September 30, ~~2021~~2022 as compared to the same period in ~~2020, mostly resulting from increased revenue~~2021. The increase is the result of a $0.6 million increase in revenues related to our HSRR ~~program.~~program, partially offset by a $0.1 million decrease in other miscellaneous revenues.

Cost of Sales. Cost of sales includes material and supply costs for the patient tests performed, costs related to HSRR products and other direct costs (primarily personnel costs, p~~athologist~~pathologist interpretation costs and rent) associated with the operations of our laboratory. Cost of sales increased ~~by $1.2~~$0.4 million for the nine months ended September 30, ~~2021~~2022 as compared to the same period in ~~2020.~~2021. The increase included ~~an increase~~increases in ~~patient diagnostic costs and~~ costs related to ~~HSRR revenue partially offset by a decrease in contract diagnostic costs which are~~both service revenues and other revenues and was in line with the ~~changes in related~~increase revenues discussed ~~above~~.above.

Gross Profit. Gross profit and gross margins were as follows:

Dollars in Thousands

Nine Months Ended

September 30,

Margin %


2021

2020

2021

2020

Gross Profit

$
1,747

673

27
%
16
%

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	Dollars in Thousands
	Nine Months Ended
	September 30,				Margin %
	2022		2021		2022		2021
Gross Profit	$	1,912		1,747	27	%	27	%

Gross margin was 27% of total net sales, for the nine months ended September 30, 2022 and 2021, ~~compared to 16% of total net sales for the same period in 2020.~~respectively. Gross profit was approximately ~~$1.7~~$1.9 million and ~~$0.7~~$1.7 million during the nine months ended September 30, 2022 and 2021, ~~and 2020,~~ respectively. ~~The gross margin increased during the nine months ended September 30, 2021, as compared to the prior year period, as a result of increases in case volume and revenue.~~ We operate a fully staffed CLIA and CAP certified clinical pathology and molecular laboratory. As such, it is necessary to maintain appropriate staffing levels to provide industry standard laboratory processing and reporting to ordering physicians. The increase in case volume enabled our laboratory to yield economies of scale and to leverage fixed expenses. We anticipate case volume to increase during 2021 and for our costs per case to improve as additional economies of scale are possible.

Operating Expenses. Operating expenses primarily consist of personnel costs, professional fees, travel costs, facility costs, stock-based compensation costs and depreciation and amortization. Our operating expenses increased by ~~$0.9~~$3.9 million to ~~$8.5~~$12.4 million for the nine months ended September 30, ~~2021~~2022 as compared to the same period in ~~2020.~~2021. The increase included the following: an increase of $0.6 million in general and administrative expenses due to ana $0.3 million increase in personnel costs, ~~and professional~~a $0.1 million increase in legal fees, and a $0.2 million increase in other costs; an increase of $0.8 million in ~~stock based compensation expenses. These increases were partially offset by a decrease of $0.6 million in~~ sales and marketing expenses ~~resulting from~~due primarily to increased personnel costs; an increase of $0.4 million in research and development expenses due to a ~~decrease~~$0.2 million increase in personnel ~~costs.~~costs and a $0.2 million increase in operating supplies; and, a $2.1 million increase in stock-based compensation expenses for the nine months ended September 30, 2022 as compared to the prior year.

Other (Expense) Income. We recorded net other income of ~~$0.4~~$0.6 million and ~~net other expense of $1.8~~$0.4 million for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The ~~current year period~~ other income ~~of $0.4 million~~for the nine months ended September 30, 2022 is attributable to non-cash income recorded on warrant revaluations. The other income for the nine months ended September 30, 2021 includes ~~$0.4 million of expense from warrant revaluations partially offset by~~a $0.8 million ~~of a~~ gain on forgiveness of debt related to the forgiveness of our ~~PPP Loan.~~

~~During the nine months ended September 30, 2020, net other expense~~Paycheck Protection Program Loan partially offset by $0.4 of $1.8 million includes $0.3 million of interest expense from the amortization of debt discounts, net of accretion of debt premiums, related to convertible notes, $0.2 million of other interest expense, $1.2 million expense for loss on extinguishment of convertible notes which was recorded in conjunction with the March 2020 Amendment and $0.3 million ofnon-cash expense recorded on warrant revaluations. The expenses were partially offset by $0.2 million of other income. Approximately $0.1 million of the other income is funds we received from the U.S. Department of Health and Human Services (“HHS”). As part of the CARES Act, HHS distributed funds to healthcare providers that received Medicare fee-for-service reimbursements in 2019. The payments from HHS are not loans and will not be required to be repaid.

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Liquidity and Capital Resources

Our working capital positions were as follows:


	Dollars in Thousands						Dollars in Thousands
	September 30, 2021		December 31, 2020		Change		September 30, 2022		December 31, 2021		Change
Current assets (including cash of $13,223 and $2,656 respectively)	$	15,090	$	4,204	$	10,886
Current assets (including cash of $5,144 and $11,668 respectively)							$	7,418	$	13,478	$	(6,060)
Current liabilities		3,648		4,656		(1,008)		4,410		4,213		197
Working capital	$	11,442	$	(452)	$	11,894	$	3,008	$	9,265	$	(6,257)

During the nine months ended September 30, 2021 we received net proceeds of $16.2 million from the sale of 5,001,000 shares of our common stock and $0.4 million from the issuance of 74,000 shares of common stock in connection with the exercise of 74,000 warrants.

Analysis of Cash Flows – Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021

Net Change in Cash. Cash decreased by $6.5 million and increased by $10.6 ~~million and $1.3~~ million during the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

Cash Flows Used in Operating Activities. The cash flows used in operating activities of approximately $6.2 million during the nine months ended September 30, 2022 included a net loss of $9.9 million, an increase in accounts receivables of $0.5 million, a decrease accrued expenses and other liabilities of $0.4 million, an increase in inventories of $0.1 million and a decrease in operating lease liabilities of $0.1 million. These were partially offset by a decrease in other assets of $0.4 million, an increase in accounts payable of $0.2 million and non-cash adjustments of $4.2 million. The non-cash adjustments included $0.2 million for the change in provision for losses on doubtful accounts. We routinely provide a reserve for doubtful accounts as a result of having limited in-network payer contracts. The other non-cash adjustments to net loss of approximately $4.0 million include, among other things, depreciation and amortization, warrant revaluations and stock-based compensation. The cash flows used in operating activities of approximately $5.2 million during the nine months ended September 30, 2021 included a net loss of $6.3 million, an increase in inventories of $0.3 million, an increase in finance lease right of use assets of less than $0.1 million, an increase in other assets of $0.3 million, a decrease in

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accounts payable, accrued expenses and other liabilities of $0.4 million and a decrease in operating lease liabilities of $0.2 million. These were partially offset by a decrease in accounts receivable of $0.2 million and non-cash adjustments of $2.2 million.The non-cash adjustments included $0.1 million for the change in provision for losses on doubtful accounts. We routinely provide a reserve for doubtful accounts as a result of having limited in-network payer contracts. Non-cash adjustments also included $0.8 million for a gain on forgiveness of debt, which resulted from the forgiveness of the PPP Loan. The other non-cash adjustments to net loss of approximately $2.9 million include, among other things, depreciation and amortization, warrant revaluations and stock based compensation. The cash flows used in operating activities of approximately $6.0 million during the nine months ended September 30, 2020 included a net loss of $8.7 million, an increase in accounts receivable of $1.5 million, an increase in inventories and other assets of $0.3 million and a decrease in accounts payable and operating lease liabilities of $0.3 million. These were partially offset by an increase in accrued expenses and other liabilities of $0.4 million and non-cash adjustments of $4.4 million.

Cash Flows Used In Investing Activities. Cash flows used in investing activities were ~~$0.6~~$0.2 million and ~~$0.1~~$0.6 million for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively, resulting from purchases of property and equipment.

Cash Flows Used in or Provided by Financing Activities. Cash flows used by financing activities totaled $0.1 million for the nine months ended September 30, 2022, which included payments on our long-term debt and finance lease obligations of $0.2 million partially offset by $0.1 million of proceeds from the issuance of common stock. Cash flows provided by financing activities totaled ~~$16.4~~$16.3 million for the nine months ended September 30, 2021, which included proceeds of $16.2 million from the issuance of common stock and $0.4 million from warrant exercises. These were partially offset by payments on our long-term debt and finance lease obligations of $0.1 million and payments on common stock warrant liabilities of $0.1 million. ~~Cash flows provided by financing activities totaled $7.4 million for~~

For further information regarding the ~~nine months ended September 30, 2020, which~~Company’s future funding requirements, see the Going Concern disclosure in Note 1 of the Notes to Unaudited Condensed Consolidated Financial Statements included ~~proceeds of $6.9 million from the issuance of common stock and proceeds of $0.8 million from the PPP Loan. These proceeds were partially offset by payments~~with this Quarterly Report on ~~our long-term debt and convertible notes of $0.3 million~~.Form 10-Q.

Off-Balance Sheet Arrangements

At each of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

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Contractual Obligations and Commitments

No significant changes to contractual obligations and commitments occurred during the nine months ended September 30, ~~2021,~~2022, as compared to those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020,~~2021, filed with the Securities and Exchange Commission on March ~~29, 2021.~~30, 2022.

Critical Accounting Policies and Estimates

Accounting policies used in the preparation of our financial statements may involve the use of management judgments and estimates. Certain of our accounting policies are considered critical as they are both important to the portrayal of our financial statements and require significant or complex judgments on the part of management. Our judgments and estimates are based on experience and assumptions that we believe are reasonable under the circumstances. Further, we evaluate our judgments and estimates from time to time as circumstances change. Actual financial results based on judgments or estimates may vary under different assumptions or circumstances. Our critical accounting policies are discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020,~~2021, filed with the Securities and Exchange Commission on March ~~29, 2021.~~30, 2022.

Recently Issued Accounting Pronouncements

See the accompanying unaudited condensed consolidated financial statements and Note 2 - “Summary of Significant Accounting Policies” in the Notes to unaudited condensed consolidated financial statements for additional information regarding recently issued accounting pronouncements.

Impact of Inflation

Inflation generally affects us with increased cost of labor and operating supplies. We do not believe that price inflation ~~or deflation~~ had a material adverse effect on our financial condition or results of operations during the periods presented.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are a smaller reporting company, as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information required under this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, management performed, with the participation of our Chief Executive Officer and Interim Chief Financial Officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”), and that such information is accumulated and communicated to management including our Chief Executive Officer and our Interim Chief Financial Officer, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and no evaluation of controls and procedures can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation, the Chief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of September 30, ~~2021.~~2022.

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Changes in Internal Control over Financial Reporting

We have evaluated the changes in our internal control over financial reporting that occurred during the three months ended September 30, ~~2021~~2022 and concluded that there have not been any changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

~~LEGAL AND REGULATORY ENVIRONMENT~~

The outcome of legal proceedings and claims brought against us are subject to significant uncertainty. Therefore, although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against us in the same reporting period for amounts in excess of management’s expectations, our financial statements for such reporting period could be materially adversely affected. In general, the resolution of a legal matter could prevent us from offering our services or products to others, could be material to our financial condition or cash flows, or both, or could otherwise adversely affect our operating results.

The Company is involved in legal proceedings related to matters, which are incidental to its business and is delinquent on the payment of outstanding accounts payable for certain vendors and suppliers who have taken or have threatened to take legal action to collect such outstanding amounts. See below for a discussion on these matters.

CPA Global provides us with certain patent management services. As previously reported, on February 6, 2017, CPA Global claimed that we owed approximately $0.2 million for certain patent maintenance services rendered. CPA Global has not filed claims against us in connection with this allegation. A liability of less than $0.1 million has been recorded and is reflected in accounts payable within the accompanying condensed consolidated balance sheets at September 30, 2022 and December 31, 2021.

Item 1A. Risk Factors

As disclosed in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, there are a number of risks and uncertainties that may have a material effect on the operating results of our business and our financial condition. The following information updates, and should be read in conjunction with, the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, and other filings we make with the Securities and Exchange Commission, which could materially affect our business, financial condition or future results. The risks described in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.

We have incurred losses since our inception and expect to incur losses for the foreseeable future. We cannot be certain that we will achieve or sustain profitability.

We have incurred losses since our inception and expect to incur losses in the future. ~~As of~~For the nine months ended September 30, ~~2021,~~2022, we had a net loss of ~~$6.3~~$9.9 million ~~working capital of $11.4 million~~ and had net cash used in operating activities of ~~$5.2~~$6.2 million. As of September 30, 2022, we had working capital of $3.0. To date, we have experienced negative cash flow from development of our diagnostic technology, as well as from the costs associated with establishing a laboratory and building a sales force to market our products and services. We expect to incur substantial net losses for the foreseeable future to further develop and commercialize our diagnostic technology. We also expect that our selling, general and administrative expenses will

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continue to increase due to the additional costs associated with market development activities and expanding our staff to sell and support our products. Our ability to achieve or, if achieved, sustain profitability is based on numerous factors, many of which are beyond our control, including the market acceptance of our products, competitive product development and our market penetration and margins. We may never be able to generate sufficient revenue to achieve or, if achieved, sustain profitability.

Because of the numerous risks and uncertainties associated with further development and commercialization of our diagnostic technology and any future tests, we are unable to predict the extent of any future losses or when we will become profitable, if ever. We may never become profitable, and you may never receive a return on an investment in our securities. An investor in our securities must carefully consider the substantial challenges, risks and uncertainties inherent

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in the development and commercialization of tests in the medical diagnostic industry. We may never successfully commercialize our diagnostic technology or any future tests, and our business may fail.

We may need to raise substantial additional capital to commercialize our diagnostic technology, and our failure to obtain funding when needed may force us to delay, reduce or eliminate our product development programs or collaboration efforts or force us to restrict or cease operations.

As of September 30, ~~2021,~~2022, our cash balance was ~~$13.2~~$5.1 million and our working capital was approximately ~~$11.4~~$3.0 million. Due to our recurring losses from operations and the expectation that we will continue to incur losses in the future, we may be required to raise additional capital to complete the development and commercialization of our current product candidates and to pay off our obligations. To date, to fund our operations and develop and commercialize our products, we have relied primarily on equity and debt financings. In future periods, when we seek additional capital, we may seek to sell additional equity and/or debt securities or to obtain a credit facility, which we may not be able to do on favorable terms, or at all. Our ability to obtain additional financing will be subject to a number of factors, including market conditions, our operating performance and investor sentiment. If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly delay, scale back or discontinue the development and/or commercialization of one or more of our product candidates, restrict or cease our operations or obtain funds by entering into agreements on unattractive ~~terms.~~terms.

We are not currently in compliance with the minimum bid price rule of the Nasdaq Capital Market, and if we cannot regain and maintain compliance, our securities may be delisted, which could negatively impact the price of our securities and hinder our ability to raise capital.

On October 28, 2022, we received a letter from the Nasdaq Capital Market (“Nasdaq”) notifying us that for the past 30 consecutive business days, the closing bid price per share of our common stock was below $1.00, the minimum bid price requirement for continued listing on Nasdaq pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). As a result, Nasdaq notified us that we were not in compliance with the Bid Price Rule. The notice from Nasdaq has no immediate effect on the listing of the shares of our common stock. Nasdaq provided us until April 26, 2023 to regain compliance with the Bid Price Rule.

To regain compliance with the Bid Price Rule, the closing bid price of our common stock must meet or exceed $1.00 per share for a minimum of ten consecutive business days during the 180-calendar day grace period. If our common stock does not regain compliance with the Bid Price Rule during this grace period, we may be eligible for an additional period of 180 calendar days provided that we meet certain requirements.

We are presently evaluating various courses of action to regain compliance with the Bid Price Rule but there can be no assurance that we will be able to regain compliance.

If Nasdaq delists our securities, we could face significant consequences, including:

●

a limited availability for market quotations for our securities;

●

reduced liquidity with respect to our securities;

●

a determination that our common stock is a “penny stock,” which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in reduced trading;

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●

reduced activity in the secondary trading market for our common stock;

●

reduced or limited amount of news and analyst coverage; and

●

a decreased ability to issue additional securities or obtain additional financing in the future.

These factors could result in lower prices and larger spreads in the bid and ask prices for our common stock and would substantially impair our ability to raise additional funds and could result in a loss of institutional investor interest and fewer development opportunities for us.

We face risks related to health pandemics and other widespread outbreaks of contagious disease, including ~~the novel coronavirus,~~ COVID-19, which could significantly disrupt our operations and impact our financial results.

~~Our business could be disrupted~~The ongoing COVID-19 pandemic is evolving, continues to spread globally, and materially adversely affected by the recent outbreak of COVID-19. In December 2019, an outbreak of respiratory illness caused by a strain of novel coronavirus, COVID-19, began in China. As of September 2021, that outbreakto date has led to ~~numerous confirmed cases worldwide,~~the implementation of various responses, including government-imposed quarantines, closure of non-essential business, work-from-home directives, travel restrictions, physical distancing, shelter-in-place orders and other public health safety measures. Despite recent progress in the ~~United States.~~administration of vaccines, both the outbreak of recent variants, including Delta and Omicron, and the related containment and mitigation measures that have been put into place across the globe, have had an adverse impact on the global economy and our business, the severity and duration of which are uncertain. The ~~outbreak and government measures taken in response~~COVID-19 pandemic continues to have ~~also had~~ a significant impact, both direct and indirect, on businesses and ~~commerce. Global health concerns, such~~commerce, as ~~coronavirus, could also result~~worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services may be slow to return to pre-pandemic levels, if they return to pre-pandemic levels. In response to the COVID-19 pandemic, many of our employees are continuing to work remotely outside of our offices. Additionally, while our laboratory operations resumed to near-normal capacity, we may continue to experience challenges in ~~social, economic,~~procuring materials and ~~labor instability~~supplies in a consistently timely manner due to COVID-19-related supply chain issues. The demand for COVID-19 vaccines and potential for manufacturing facilities and materials to be commandeered under the ~~countries in which we~~Defense Production Act of 1950, or equivalent foreign legislation, may make it more difficult to obtain materials or manufacturing. If any of our third-party manufacturers is adversely impacted by the ~~third parties with whom we engage operate.~~

~~The spread~~COVID-19 pandemic or if they divert resources or manufacturing capacity to accommodate the development or manufacture of COVID-19 has created a worldwide humanitarian and economic crisis. The events we are living through are in many ways unprecedented, with large-scale quarantines, border closings, school closings, and physical distancing. Governments and communities have been jolted into actionvaccines, our supply chain may be disrupted, limiting our ability to ~~“flatten the curve.” As an organization we have accelerated~~produce our ~~actions to protect employees, customers and suppliers.~~

The progression of the outbreak and its effects on our business and operations are uncertain. While we can only estimate the financial impacts to our business, based on current data, we have experienced business interruptions in certain urban markets that continue to range from 30% to 85%. With the understanding that it is extremely difficult to project the full and ongoing impact of state-by-state quarantine and shelter-in-place orders, we anticipate that such rules and restrictions on businesses will continue through 2021 and quite possibly beyond, in various degrees, as the country re-opens state by state, county by county and city by city. Returning to normalcy is conditioned on many factors surrounding the control and or eradication of COVID-19. As such, we are unable to provide additional insight on the impact to our business at this time.diagnostic tests.

Going forward, we expect that challenges to our business will continue. We have been and will continue to be prudent in managing through this economic crisis. Digital connectivity is now fundamental to the continuity of our business operations. We continually engage our employees and customers in keeping safe. We monitor adherence to governmental guidelines. We have employed remote work where possible. In this unchartered time, we recognize the need for frequent and transparent communication to all parties. ~~As necessary,~~

We depend on certain technologies that are licensed to us. We do not control these technologies and any loss of our rights to them could prevent us from selling some of our products.

On September 1, 2022, we terminated the license agreement with Dana-Farber pursuant to which we previously licensed our ICP technology. For more information regarding this license agreement termination, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Recent Developments”. In the future, we may enter into other license agreements with third parties for certain licensed technologies that are, or may become, relevant to the products we market, or plan to market. In addition, we may elect to license third party intellectual property to further our business objectives and/or as needed for freedom to operate for our products. We do not and will ~~provide additional information~~not own the patents, patent applications or other intellectual property rights that are the subject of the Dana-Farber license or these other future licenses. Our rights to use these technologies and employ the inventions claimed in the licensed patents, patent applications and other intellectual property rights are or will be subject to the continuation of and compliance with the terms of those licenses.

We might not be able to obtain licenses to technology or other intellectual property rights that we require. Even if such licenses are obtainable, they may not be available at a reasonable cost or multiple licenses may be needed for the same product (e.g., stacked royalties). We could therefore incur substantial costs related to royalty payments for licenses

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obtained from third parties, which could negatively affect our gross margins. Further, we could encounter delays in product introductions, or interruptions in product sales, as we develop alternative methods or products.

In some cases, we do not or may not control the prosecution, maintenance, or filing of the patents or patent applications to which we hold licenses, or the enforcement of these patents against third parties. As a result, we cannot be certain that drafting or prosecution of the licensed patents and patent applications by the licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights.

Inflation may continue to rise and increase our operating costs.

Over the twelve months ended June 2022, the US Bureau of Labor and Statistics reported that inflation increased 9.1 percent as against prices from June 2021. This represents the largest 12-month advance since 1981. The inflation increase over the twelve months ended September 2022 was 8.2 percent. Rising inflation has the potential to adversely affect our liquidity, business, financial condition and results of operations by increasing our overall cost structure. Although we may take measures to mitigate the impact of this ~~economic~~inflation, if these measures are not effective, our business, financial condition, results of operations and liquidity could be materially adversely affected. Even if such measures are effective, there could be a difference between the timing of when these beneficial actions impact our results of operations and when the cost inflation is incurred.

Recent volatility in capital markets and lower market prices for our securities may affect our ability to access new capital through sales of shares of our common stock or issuance of indebtedness, which may harm our liquidity, limit our ability to grow our business, or improve our operating infrastructure and restrict our ability to compete in our markets.

Our operations consume substantial amounts of cash, and we intend to continue to make significant investments to support our business growth, respond to business challenges or opportunities, develop new solutions, retain or expand our current levels of personnel, improve our existing solutions, and enhance our operating infrastructure. Our future capital requirements may be significantly different from our current estimates and will depend on many factors, including the ~~impact~~need to:

●

finance unanticipated working capital requirements;

●

develop or enhance our technological infrastructure and our existing solutions;

●

pursue acquisitions or other strategic relationships; and

●

respond to competitive pressures.

Accordingly, we may need to pursue equity or debt financings to meet our capital needs. With uncertainty in the capital markets and other factors, such financing may not be available on terms favorable to us or at all. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock. Any debt financing secured by us in the future could involve additional restrictive covenants relating to our ~~future operating results due~~capital-raising activities and other financial and operational matters, which may make it more difficult for us to ~~downturns~~obtain additional capital and to pursue business opportunities, including potential acquisitions. If we are unable to obtain adequate financing or financing on terms satisfactory to us, we could face significant limitations on our ability to invest in ~~global economies~~our operations and ~~financial markets.~~otherwise suffer harm to our business.

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

None.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

(a)

Exhibits



31.1		Certification of Principal Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended.

31.2		Certification of Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended.

32.1*		Certification of Principal Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended.

32.2*		Certification of Principal Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended.

101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File ~~- the cover page interactive data file does not appear~~– formatted as inline XBRL with applicable taxonomy extension information contained in ~~the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.~~Exhibits 101.

* This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Registrant specifically incorporates it by reference

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	PRECIPIO, INC.

Date: November ~~12, 2021~~10, 2022	By:	/S/ ILAN DANIELI
		Ilan Danieli
		Chief Executive Officer (Principal Executive Officer)


Date: November ~~12, 2021~~10, 2022	By:	/S/ ~~CARL IBERGER~~MATTHEW GAGE
		~~Carl Iberger~~Matthew Gage
		Interim Chief Financial Officer (Principal Financial and Accounting Officer)

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	2020
		Debt Discounts		Debt Premiums
Beginning balance at January 1	$	(1,796)	$	—
Additions:		—		793
Deductions:
Amortization (accretion) (1)		703		(385)
Write-off related to note conversions (2)		138		(408)
Write-off related to note extinguishment (3)		955		—
Balance at September 30	$	—	$	—


(dollars in thousands)
Classification on the Consolidated Balance Sheet	September 30, 2021		December 31, 2020 (1)
Assets:
Operating lease right-of-use assets, net	$	144	$	306
Finance lease right-of-use assets, net (2)		487		204
Total lease assets	$	631	$	510

Liabilities:
Current:
Current maturities of operating lease liabilities	$	93	$	225
Current maturities of finance lease liabilities		244		48
Noncurrent:
Operating lease liabilities, less current maturities		57		92
Finance lease liabilities, less current maturities		187		116
Total lease liabilities	$	581	$	481


	Amount Recorded
Deemed Dividends	(in thousands)

Dividends resulting from the March 2020 Amendment
Deemed Dividend A	$	3,333
Deemed Dividend B		6
Deemed Dividend C		5
Deemed Dividend D		*

For the nine months ended September 30, 2020	$	3,344