Precipio, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; filed May 14, 2021. Financial statements are unaudited. Precipio is a cancer diagnostics and reagent technology company operating clinical laboratories and commercializing products including HemeScreen.
Key financial results
Amounts below are in thousands of dollars, except per-share data and percentages.
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $1,824 | $1,216 |
| Gross profit / margin | $468 / 26% | $125 / 10% |
| Operating loss | $(2,137) | $(2,203) |
| Net loss | $(1,451) | $(3,205) |
| Net loss attributable to common stockholders | $(1,452) | $(6,549) |
| Basic and diluted loss per share | $(0.08) | $(0.78) |
| Cash used in operating activities | $(1,289) | $(1,589) |
- Cash was $2,286 at March 31, 2021, down from $2,656 at year-end 2020. Working capital remained negative at $(324), improving from $(452).
- Long-term debt, net of issuance costs, was $210, including $30 current and $180 noncurrent. The $787 PPP loan was forgiven in March, producing a $794 gain. Lease liabilities totaled $511; warrant liabilities were $1,313.
- Financing activities provided $1,104, including $1,260 from common-stock issuance; investing activities used $185, primarily for equipment.
Changes versus prior year
- Net sales rose 50%. Service revenue, net of doubtful-account allowances, increased 39% to $1,657; other revenue increased to $167 from $24.
- Management attributed higher patient diagnostic revenue to case volume rising 59%, to 1,083 from 683. Contract diagnostics revenue declined $0.3 million, partially offsetting the increase. First recurring revenue from initial HemeScreen Reagent Rental (HSRR) accounts began in Q1.
- Gross margin improved to 26% from 10%, which management attributed to higher volume and better absorption of fixed laboratory costs. Operating expenses increased $277 to $2,605, including higher research and development, general and administrative, and stock-based compensation costs.
- Net loss improved, but the comparison includes unusual financing items: Q1 2021 benefited from PPP forgiveness, while Q1 2020 included a $1,225 convertible-note extinguishment loss and $3,344 of deemed dividends affecting loss attributable to common stockholders.
- Weighted-average common shares increased to 17.9 million from 8.4 million, reflecting substantial equity issuance.
Liquidity, outlook, and risks
- Going concern: The filing states substantial doubt remains about the company’s ability to continue as a going concern for the next 12 months. It cites recurring losses, negative working capital, operating cash use, and dependence on revenue growth and additional financing.
- Post-quarter financing and dilution: Under an ATM agreement signed April 2, 2021, the company reported approximately $15.4 million of gross proceeds from 4,501,000 shares sold through the filing date; it also received about $0.4 million from 74,000 warrant exercises. The filing states $6.6 million remained available under the sales agreement and approximately $1.2 million under its Lincoln Park purchase agreement. These proceeds occurred after March 31 and do not change the quarter-end cash balance.
- Management outlook: Management anticipated higher 2021 case volume and potential further improvement in cost per case as the laboratory gains scale. No specific revenue or earnings guidance was provided.
- COVID-19: The company said the pandemic’s effects remained uncertain and reported business interruptions of 30% to 85% in certain urban markets. It could not predict the full financial impact.
- Collection and reimbursement exposure: Net accounts receivable was $625 against gross receivables of $4,926 and an allowance of $4,301. Management noted limited in-network payer contracts; Medicare and Medicaid reimbursement estimates may change.
- Other risks and contingencies: The company reported vendor payment delinquencies and threatened collection actions, a CPA Global claim of approximately $0.2 million (less than $0.1 million recorded), and exposure to healthcare regulatory requirements. Management said no material regulatory inquiries had been made.
Most important facts for investors to verify
- Whether operating cash use and losses decline sufficiently to address the disclosed substantial doubt about going concern.
- Actual ATM and Lincoln Park proceeds, remaining sale capacity, and the resulting share-count dilution after the reporting date.
- Whether HSRR and other product revenue expand beyond the first few accounts, and whether higher diagnostic case volumes persist.
- Collection experience, payer reimbursement, and the adequacy of the large doubtful-account allowance.
- The extent to which COVID-related disruptions, vendor claims, and regulatory or reimbursement matters affect operations and liquidity.