Precipio, Inc. — Q1 2023 Form 10-Q
Business context and reporting period
Precipio is a cancer-diagnostics company operating CLIA laboratories and developing diagnostic products, reagents, and services. This unaudited report covers the three months ended March 31, 2023, compared with Q1 2022. Unless otherwise stated, amounts are in U.S. dollars.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Net sales | $2.817 million | $2.447 million; up 15% |
| Gross profit / margin | $749,000 / 27% | $703,000 / 29% |
| Operating expenses | $3.775 million | $5.512 million |
| Operating loss | $3.026 million | $4.809 million |
| Net loss attributable to common stockholders | $3.030 million; $0.13 per share | $4.590 million; $0.20 per share |
| Cash used in operating activities | $1.575 million | $2.334 million |
| Cash at period end | $2.141 million | $9.261 million at March 31, 2022 |
At March 31, 2023, current assets were $3.995 million and current liabilities were $4.501 million, leaving negative working capital of $506,000. Total liabilities were $5.198 million. Long-term debt, net of issuance costs, was $269,000, and finance and operating lease liabilities totaled $930,000. The company reported an accumulated deficit of $95.327 million. Capital expenditures were $22,000; financing activities provided $293,000, including $438,000 of net proceeds from common-stock sales.
Material changes versus the prior comparable period
- Net sales increased $370,000. Patient diagnostic service revenue, net of doubtful-account allowance, rose 7% to $2.056 million; other revenue increased 46% to $761,000, primarily from HemeScreen reagent sales. The company processed 1,196 cases, up 20% from 997.
- Cost of sales increased $324,000, and gross margin declined by 2 percentage points to 27%, despite higher sales.
- Operating expenses fell $1.737 million, mainly reflecting $1.782 million less stock-based compensation and lower general and administrative costs, including legal expenses. These decreases were partly offset by higher sales and marketing costs as the company expanded its product sales force.
- Operating cash use improved by $759,000 year over year, but cash declined by $1.304 million during Q1 2023. Cash at March 31, 2023 was substantially below the prior-year quarter-end balance.
Outlook, risks, contingencies, and unusual items
- Going concern: Management states that substantial doubt remains about the company’s ability to continue as a going concern for the 12 months following issuance. The company cites recurring losses, Q1 operating cash use of $1.575 million, negative working capital, and dependence on executing its plan and obtaining additional financing. It expects substantial losses through at least 2023 and gives no quantified revenue or earnings guidance.
- Financing and dilution: The prior ATM agreement expired April 13, 2023. A new agreement entered April 14 permits up to $5.8 million of common-stock sales, with a 3% agent commission. By issuance, the company had sold 500 shares for less than $1,000 in gross proceeds under the new agreement. Q1 sales under the prior ATM raised $438,000 net through 543,826 shares.
- Nasdaq listing: Nasdaq extended the deadline to regain the $1 minimum bid-price requirement to October 23, 2023. Failure to demonstrate compliance for at least ten consecutive business days could lead to delisting; the company says there is no assurance it will regain compliance.
- Other obligations and claims: The company reports delinquent vendor and supplier payables, with some creditors taking or threatening legal action. Purchase commitments, mostly for laboratory reagents, were approximately $1.2 million. A CPA Global claim for approximately $200,000 remains disclosed; less than $100,000 is recorded as a liability, and no claim has been filed. Management reports no material regulatory inquiries but notes healthcare-law compliance risks.
- Other uncertainties: Management identifies potential COVID-19-related supply disruptions and broad risks including reimbursement, financing, competition, regulation, and execution. The company is working with Poplar Healthcare to dissolve its joint venture with an effective date of December 31, 2022.
Most important facts for investors to verify
- Whether the company can fund operations and meet obligations over the next 12 months, given the explicit substantial-doubt going-concern disclosure and cash burn.
- Actual proceeds and share dilution from the new $5.8 million ATM, and the availability and terms of any additional financing.
- Progress toward Nasdaq’s October 23, 2023 bid-price compliance deadline and the potential consequences of delisting.
- Whether revenue growth, case volumes, and HemeScreen sales can support improved gross margins while sales and marketing costs rise.
- The status and potential cash impact of overdue vendor balances, threatened collections, the CPA Global matter, and reagent purchase commitments.
- Reconcile ATM proceeds disclosed on a gross-versus-net basis: the filing gives approximately $16.1 million in gross proceeds in one passage and approximately $15.6 million in net proceeds in another for the prior agreement.