Precipio, Inc.

Previous wording

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 audited 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, 2024, which we filed with the Securities and Exchange Commission on March 27, 2025. Results for the three months ended March 31, 2025 are not necessarily indicative of results that may be attained in the future.

Current wording

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 audited 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, 2024, which we filed with the Securities and Exchange Commission on March 27, 2025. Results for the three and six months ended June 30, 2025 are not necessarily indicative of results that may be attained in the future.

Previous wording

From January 1, 2025 through the date of issuance of this Quarterly Report on Form 10-Q, we have made approximately $0.2 million in repayments to CHC and in May 2025, we wrote off another $0.1 million. See Note 4 – “Accrued Expenses and Other Current Liabilities” for further discussion.

Current wording

During the six months ended June 30, 2025, we have made approximately $0.3 million in repayments to CHC and in May 2025, we wrote off another $0.1 million. See Note 4 – “Accrued Expenses and Other Current Liabilities” to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for further discussion.

Previous wording

In November 2022, the Company submitted an ERC claim totaling approximately $1.5 million. In April 2025, the Company received an initial payment of approximately $0.4 million. The Company anticipates recording this amount as other income in the condensed consolidated statements of operations for the second quarter of 2025.

Current wording

In November 2022, the Company submitted an ERC claim totaling approximately $1.5 million. During the three months ended June 30, 2025, the Company received payments totaling approximately $0.8 million. The Company recorded this amount as other income in the condensed consolidated statements of operations for the second quarter of 2025.

Previous wording

The Company retains all rights to pursue and receive the remaining balance of approximately $1.1 million and is actively evaluating the likelihood and timing of any additional disbursements. The Company has not waived any claims to the unpaid portion of the ERC and is taking reasonable steps to secure the remaining balance. However, there can be no assurance as to the timing, amount, or certainty of receipt of additional funds, and the Company will continue to assess the collectability of the remaining claim in accordance with applicable accounting standards.

Current wording

The Company retains all rights to pursue and receive the remaining balance of approximately $0.7 million and is actively evaluating the likelihood and timing of any additional disbursements. The Company has not waived any claims to the unpaid portion of the ERC and is taking reasonable steps to secure the remaining balance. However, there can be no assurance as to the timing, amount, or certainty of receipt of additional funds, and the Company will continue to assess the collectability of the remaining claim in accordance with applicable accounting standards.

Previous wording

The $0.4 million ERC refund and the $0.1 million CHC write-off discussed above are non-recurring items and, as a result of these non-recurring items, we expect to record approximately $0.5 million of other income in the condensed consolidated statements of operations for the second quarter of 2025.

Current wording

The $0.8 million ERC refund and the $0.1 million CHC write-off discussed above are non-recurring items and, as a result of these non-recurring items, we recorded approximately $0.9 million of other income in the condensed consolidated statements of operations for the second quarter of 2025.

Previous wording

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 we will realize our assets and discharge our liabilities in the ordinary course of business and do not include any adjustments that might result should the Company be unable to continue as a going concern. We have incurred substantial operating losses and has used cash in its operating activities for the past several years. For the three months ended March 31, 2025, we had a net loss of $0.9 million and net cash used in operating activities of $0.1 million. As of March 31, 2025, we had an accumulated deficit of $103.3 million and a working capital deficit of $1.1 million. Our ability to continue as a going concern over the next twelve months from the date the condensed consolidated financial statements were issued is dependent upon a combination of achieving its business plan, including generating additional revenue, and raising additional financing to meet its debt obligations and paying liabilities arising from normal business operations when they come due.

Current wording

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 we will realize our assets and discharge our liabilities in the ordinary course of business and do not include any adjustments that might result should the Company be unable to continue as a going concern. We have incurred substantial operating losses and have typically used cash in our operating activities for the past several years. For the six months ended June 30, 2025, we had an operating loss of $1.7 million and net cash provided by operating activities of $0.3 million. As of June 30, 2025, we had an accumulated deficit of $103.3 million and a working capital deficit of $0.3 million. Our ability to continue as a going concern over the next twelve months from the date the condensed consolidated financial statements were issued is dependent upon a combination of achieving its business plan, including generating additional revenue, and raising additional financing to meet its debt obligations and paying liabilities arising from normal business operations when they come due.

Previous wording

Cost of Sales. Cost of sales includes material and supply costs for the patient tests performed, costs related to products and other direct costs (primarily personnel costs, pathologist interpretation costs and rent) associated with the operations of our laboratory. Cost of sales increased by $0.3 millionfor the three months ended March 31, 2025 as compared to the same period in 2024. The increase is primarily attributable to increases in reagents, operating supplies, personnel costs and pathologist interpretation costs all due to the higher number of cases processed, as discussed above.

Current wording

Cost of Sales. Cost of sales includes material and supply costs for the patient tests performed, costs related to 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 millionfor the three months ended June 30, 2025 as compared to the same period in 2024. The increase is primarily attributable to increases in reagents, operating supplies, personnel costs and pathologist interpretation costs all due to the higher number of cases processed, as discussed above.

Previous wording

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

Current wording

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

Previous wording

Gross margin was 43% and 27% of total net sales for the three months ended March 31, 2025 and 2024, respectively. Gross profit was approximately $2.1 million and $0.9 million during the three months ended March 31, 2025 and 2024, respectively. The gross profit increased during the three months ended March 31, 2025, as compared to the prior year period, as a result of increases in case volume and revenue. We operate a fully staffed CLIA and College of American Pathologists (“CAP”) certified clinical pathology and molecular laboratory. As such, it is necessary to maintain appropriate staffing levels to provide industry standard laboratory processing and reporting to ordering physicians. The increase in case volume enabled our laboratory to yield economies of scale and to leverage fixed expenses.

Current wording

Gross margin was 43% and 39% of total net sales for the three months ended June 30, 2025 and 2024, respectively. Gross profit was approximately $2.4 million and $1.7 million during the three months ended June 30, 2025 and 2024, respectively. The gross profit increased $0.7 million during the three months ended June 30, 2025, as compared to the prior year period, as a result of increases in case volume and revenue. We operate a fully staffed CLIA and College of American Pathologists (“CAP”) certified clinical pathology and molecular laboratory. As such, it is necessary to maintain appropriate staffing levels to provide industry standard laboratory processing and reporting to ordering physicians. The increase in case volume enabled our laboratory to yield economies of scale and to leverage fixed expenses.

Previous wording

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 remained flat at $3.0 million for the three months ended March 31, 2025 as compared to the same period in 2024. For the three months ended March 31, 2025: (1) stock-based compensation increased by 0.1 million, (2) general and administrative expenses were flat as compared to the same period in the previous year and included an increase of less than $0.1 million in personnel costs offset by a decrease of less than $0.1 million in bad debt expense, (3) sales and marketing expenses decreased by $0.1 million due to a decrease in professional fees, and (4) research and development expenses were flat as compared to the same period in the previous year and included an increase of less than $0.1 million in personnel costs offset by a decrease of less than $0.1 million in operating supplies.

Current wording

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 $0.3 million for the three months ended June 30, 2025 as compared to the same period in 2024. For the three months ended June 30, 2025: (1) stock-based compensation increased by $0.1 million, (2) general and administrative expenses increased by $0.2 million due to a $0.1 million increase in personnel costs and a $0.1 million increase in other costs, (3) sales and

Previous wording

Other (Expense) Income. We recorded net other expense of $25 thousand and $5 thousand for the three months ended March 31, 2025 and 2024, respectively, which was related to net interest expense.

Current wording

Other (Expense) Income. We recorded net other income of $0.9 million for the three months ended June 30, 2025 which included income of $0.1 million from the gain on settlement of liabilities, income of $0.8 million from the receipt of Employee Retention Credits, and net interest expense of $23 thousand. During the three months ended June 30, 2024, we recorded net other expense of $11 thousand which was related to net interest expense.

Previous wording

Net sales for the three months ended March 31, 2025 were approximately $4.9 million, an increase of $1.5 million as compared to the same period in 2024. During the three months ended March 31, 2025, patient diagnostic service revenue increased $1.5 million as compared to the same period in 2024. This increase was due to a greater number of cases processed in the current year period. We processed 3,021 cases during the three months ended March 31, 2025 as compared to 2,062 cases during the same period in 2024, or a 47% increase in cases. The benefit of the increase in cases billed during the first quarter of 2025 as compared to the same period in 2024 was partially offset by a lower average price per case during the current year as a result of a different product mix. Product revenue for the three months ended March 31, 2025 was similar to the same period in 2024.

Current wording

Net sales for the six months ended June 30, 2025 were approximately $10.6 million, an increase of $2.7 million as compared to the same period in 2024. During the six months ended June 30, 2025, patient diagnostic service revenue increased by $2.7 million as compared to the same period in 2024. This increase was due to a greater number of cases processed in the current year period. We processed 6,713 cases during the six months ended June 30, 2025 as compared to 5,161 cases during the same period in 2024, or a 30% increase in cases. Product revenue for the six months ended June 30, 2025 stayed relatively consistent as compared tothe same period in 2024.

Previous wording

Analysis of Cash Flows – Three Months Ended March 31, 2025 and 2024

Current wording

Analysis of Cash Flows – Six Months Ended June 30, 2025 and 2024

Previous wording

Cash Flows Used in Operating Activities. The cash flows used in operating activities of less than $0.1 million during the three months ended March 31, 2025 included a net loss of $0.9 million, an increase in accounts receivables of $0.1 million, an increase in inventories of $0.1 million, a decrease in operating lease liabilities of $0.1 million and a decrease in accrued expenses of $0.1 million. These were partially offset by a decrease in other assets of $0.1 million, an increase in accounts payable of $0.2 million, an increase in deferred revenues of $0.1 million, and non-cash adjustments of $0.9 million. The non-cash adjustments included less than $0.1 million for the change in provision for credit losses. We routinely provide a reserve for credit losses as a result of having limited in-network payer contracts. The other non-cash adjustments to net loss of approximately $0.7 million include, among other things, depreciation and amortization, and stock-based compensation. The cash flows used in operating activities of approximately $0.7 million during the three months ended March 31, 2024 included a net loss of $2.1 million, an increase in inventories of $0.1 million and a decrease in operating lease liabilities and accrued expenses of $0.1 million. These were partially offset by a decrease in accounts receivables of $0.3 million, a decrease in other assets of $0.1 million, an increase in accounts payable of $0.3 million, an increase in deferred revenues of $0.1 million, and non-cash adjustments of $0.8 million.

Current wording

Cash Flows Provided by or Used in Operating Activities. The cash flows provided by operating activities of $0.3 million during the six months ended June 30, 2025 included a decrease in other assets of $0.1 million, an increase in accounts payable of $0.5 million, an increase in deferred revenues of $0.1 million, and non-cash adjustments of $1.6 million. These were partially offset by a net loss of $0.8 million, an increase in accounts receivables of $0.6 million, an increase in inventories of $0.3 million, a decrease in operating lease liabilities of $0.1 million and a decrease in accrued expenses of $0.2 million. The non-cash adjustments included less than $0.1 million for the change in provision for credit losses. We routinely provide a reserve for credit losses as a result of having limited in-network payer contracts. The other non-cash adjustments to net loss of approximately $1.5 million include, among other things, depreciation and amortization, and stock-based compensation. The cash flows used in operating activities of approximately $0.2 million during the six months ended June 30, 2024 included a net loss of $3.3 million, an increase in inventories of $0.3 million and a decrease in operating lease liabilities of $0.1 million. These were partially offset by a decrease in accounts receivables of $0.1 million, a decrease in other assets of $0.2 million, an increase in accounts payable of $0.2 million, an increase in deferred revenues of $0.1 million, an increase in accrued expenses of $1.1 million and non-cash adjustments of $1.8 million.

Previous wording

Cash Flows Used In Investing Activities. Cash flows used in investing activities were approximately $0.1 million and zero for the three months ended March 31, 2025 and 2024, respectively, resulting from purchases of property and equipment.

Current wording

Cash Flows Used In Investing Activities. Cash flows used in investing activities were approximately $0.2 million and $0.1 million for the six months ended June 30, 2025 and 2024, respectively, resulting from purchases of property and equipment.

Previous wording

Cash Flows Used in or Provided by Financing Activities. Cash flows used in financing activities totaled $0.2 million for the three months ended March 31, 2025, which included $0.2 million in payments on our long-term debt and finance lease obligations. Cash flows used in financing activities totaled less than $0.1 million for the three months ended March 31, 2024, which included $0.1 million in payments on our long-term debt and finance lease obligations partially offset by less than $0.1 million of proceeds from the issuance of common stock.

Current wording

Cash Flows Used in or Provided by Financing Activities. Cash flows used in financing activities totaled $0.4 million for the six months ended June 30, 2025, which included $0.4 million in payments on our long-term debt and finance lease obligations. Cash flows provided by financing activities totaled less than $0.1 million for the six months ended June 30, 2024, which included $0.3 million of proceeds from debt and $0.1 million of proceeds from the issuance of common stock. These were partially offset by $0.3 million in payments on our long-term debt and finance lease obligations.

Previous wording

At each of March 31, 2025 and December 31, 2024, other than certain purchase commitments of approximately $2.7 million and $3.1 million, respectively, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. The purchase commitments are mostly for laboratory reagents used in our normal operating business.

Current wording

At each of June 30, 2025 and December 31, 2024, other than certain purchase commitments of approximately $2.2 million and $3.1 million, respectively, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. The purchase commitments are mostly for laboratory reagents used in our normal operating business.

Previous wording

Inflationary factors, such as increases in our cost of goods, labor, or other operating expenses, may adversely affect our operating results. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we do not believe inflation had a material effect on our financial condition or results of operations during the three months ended March 31, 2025 and 2024. We cannot assure you, however, that we will be able to increase the prices of our products or reduce our operating expenses in an amount sufficient to offset the effects future inflationary pressures may have on our gross margin. Accordingly, we cannot assure you that our financial condition and results of operations will not be materially impacted by inflation in the future.

Current wording

Inflationary factors, such as increases in our cost of goods, labor, or other operating expenses, may adversely affect our operating results. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we do not believe inflation had a material effect on our financial condition or results of operations during the three and six months ended June 30, 2025 and 2024. We cannot assure you, however, that we will be able to increase the prices of our products or reduce our operating expenses in an amount sufficient to offset the effects future inflationary pressures may have on our gross margin. Accordingly, we cannot assure you that our financial condition and results of operations will not be materially impacted by inflation in the future.