Precipio, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; this is an annual filing, not a standalone fourth-quarter report. Precipio provides oncology diagnostic services and develops laboratory reagents and technologies. It also formed a 49%-owned oncology-services joint venture with Poplar Healthcare in April 2020, which it consolidates.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $6.1 million | $3.1 million |
| Gross profit / margin | $1.15 million / 19% | $0.22 million / 7% |
| Operating loss | $9.15 million | $10.99 million |
| Net loss | $10.60 million | $13.24 million |
| Net loss attributable to common stockholders | $13.97 million | $13.24 million |
| Cash used in operating activities | $7.43 million | $9.14 million |
| Cash at year-end | $2.66 million | $0.85 million |
| Working capital | $(0.45) million | $(2.46) million |
Net sales increased 95%; patient diagnostic case volume rose 120%, to 3,677 cases from 1,672, alongside customer-base expansion and higher ordering by existing customers. Reported net sales include $5.87 million of patient service revenue after doubtful-account allowances and $0.22 million of other revenue. Cost of sales was $4.94 million. The improved gross margin reflected higher volume and leverage of fixed laboratory costs. Operating expenses were $10.30 million, down from $11.21 million, principally because FY2019 included a $1.59 million intangible-asset impairment; higher sales and marketing costs partly offset the reduction.
FY2020 net loss attributable to common stockholders includes $3.34 million of deemed dividends from down-round adjustments to preferred stock and warrants. The company also recorded a $1.23 million loss on extinguishment of convertible debt following a March 2020 amendment. No income-tax benefit was recorded in 2020.
At year-end, the balance sheet reported $1.01 million of long-term debt, net of issuance costs, and no convertible notes outstanding; it also included $1.33 million of warrant liabilities. The $0.79 million PPP loan was included in debt, with forgiveness application filed in February 2021 but no assurance of forgiveness. Financing activities provided $9.34 million in 2020, including $8.93 million from common-stock issuance and $0.79 million from the PPP loan. Common shares outstanding rose to 17.58 million from 7.90 million. Contractual obligations totaled $3.33 million, including debt, leases, and purchase commitments.
Changes, outlook, and material risks
- Commercial developments: Precipio launched its HemeScreen Reagent Rental program in late 2020 and signed three accounts during the fourth quarter, then in training and validation. Management expected recurring revenue from those accounts in Q1 2021 and reported four additional regional accounts signed in 2021 through its ION partnership. It also entered a distribution agreement for an FDA-authorized COVID-19 antibody test.
- Management outlook: The company expected case volume to increase in 2021 and costs per case to improve through scale. Management believed 2020 organic growth could be sustained absent another complete lockdown. No quantified company-wide revenue, earnings, or cash-flow guidance was provided.
- Going concern and financing: The auditor’s report includes an explanatory paragraph stating substantial doubt about the company’s ability to continue as a going concern. Management said ongoing operations depend on executing its business plan and raising additional financing. The Lincoln Park equity facility had a $10 million commitment; approximately $8.8 million had been received by the financial-statement issuance date, leaving about $1.2 million available under that agreement at that time. Further equity financing may be dilutive, and the company also had an effective shelf registration permitting offerings up to $50 million, but no related prospectus supplements had been filed by the 10-K issuance date.
- COVID-19: The company reported business interruptions in certain urban markets ranging from 30% to 85% and said the duration and financial effects remained uncertain.
- Revenue estimation and reimbursement: Revenue depends on estimates of contractual and collection allowances. FY2020 gross revenue was approximately $15.9 million, less approximately $8.5 million of contractual allowances and $1.3 million of collection allowances. Medicare, Medicaid, and other government programs represented approximately 40% of revenue, exposing the business to reimbursement and payer-mix changes.
- Other risks and contingencies: The company cited continued losses, customer and receivable concentration risks, competition, product adoption and reimbursement uncertainty, regulatory and CLIA/HIPAA compliance, key-personnel and laboratory-disruption risks, and potential stock dilution. A shareholder lawsuit settlement was approved and closed in 2020; the filing also describes overdue vendor and supplier payables and threatened or potential collection actions. The PPP loan had not been confirmed forgiven.
Most important facts for investors to verify
- Whether the company secured sufficient funding after the approximately $1.2 million then remaining on the Lincoln Park facility, and how subsequent equity issuance affected share count and dilution.
- Whether the PPP loan was forgiven, and the company’s current cash, working capital, debt maturities, and ability to fund operations.
- Whether HemeScreen accounts completed validation and generated recurring revenue, and whether management’s volume and cost-per-case expectations were achieved.
- How actual collections compare with the substantial contractual and doubtful-account allowances, including the effects of payer mix and reimbursement rates.
- The duration and financial effect of COVID-related disruptions and the status of vendor claims or other material contingencies.