Precipio(PRPO) - 2020 Q2 - Quarterly Report

PART I. Financial Information Condensed Consolidated Financial Statements This section presents Precipio, Inc.'s unaudited condensed consolidated financial statements for H1 2020, highlighting a $5.4 million net loss, $2.7 million negative working capital, and substantial doubt about going concern Condensed Consolidated Balance Sheets As of June 30, 2020, total assets were $19.0 million, total liabilities $6.4 million, and stockholders' equity $12.6 million, with a $2.7 million negative working capital Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2020 (unaudited) | December 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $2,015 | $1,878 | | Total Assets | $19,034 | $19,511 | | Total Current Liabilities | $4,680 | $4,334 | | Total Liabilities | $6,407 | $6,306 | | Total Stockholders' Equity | $12,627 | $13,205 | | Working Capital | ($2,665) | ($2,456) | Condensed Consolidated Statements of Operations Q2 2020 net sales grew 39% to $1.3 million with a $2.2 million net loss, while H1 2020 net sales grew 53% to $2.5 million but net loss widened to $8.8 million due to a deemed dividend Q2 Performance (in thousands, except per share data) | Metric | Q2 2020 | Q2 2019 | | :--- | :--- | :--- | | Net Sales | $1,308 | $942 | | Gross Profit | $171 | $172 | | Operating Loss | ($2,259) | ($2,295) | | Net Loss Attributable to Common Stockholders | ($2,249) | ($5,913) | | Basic and Diluted Loss Per Share | ($0.20) | ($1.05) | Six-Month Performance (in thousands, except per share data) | Metric | H1 2020 | H1 2019 | | :--- | :--- | :--- | | Net Sales | $2,524 | $1,655 | | Gross Profit | $296 | $210 | | Operating Loss | ($4,462) | ($4,354) | | Net Loss Attributable to Common Stockholders | ($8,798) | ($7,565) | | Basic and Diluted Loss Per Share | ($0.89) | ($1.66) | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity decreased by $0.6 million in H1 2020 due to a $5.5 million net loss, partially offset by $4.8 million from common stock issuances and note conversions, nearly doubling outstanding shares - For the six months ended June 30, 2020, total stockholders' equity decreased by approximately $0.6 million. This was mainly due to a net loss of $5.45 million, which was largely offset by $4.8 million in capital raised from common stock issuances via note conversions and purchase agreements[12] - The number of outstanding common shares increased significantly from 7,898,117 at the beginning of the year to 14,616,916 at June 30, 2020, primarily due to conversions of debt and stock purchase agreements[12] Condensed Consolidated Statements of Cash Flows H1 2020 saw $3.6 million cash used in operations, offset by $3.1 million from financing, resulting in a $0.5 million net cash decrease and a $0.4 million ending cash balance Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | ($3,562) | ($4,887) | | Net cash used in investing activities | ($10) | ($30) | | Net cash provided by financing activities | $3,077 | $5,705 | | Net Change in Cash | ($495) | $788 | | Cash at End of Period | $353 | $1,169 | Notes to the Condensed Consolidated Financial Statements Notes detail accounting policies, a joint venture with Poplar Healthcare, going concern doubt due to losses and negative working capital, long-term debt including a $0.8 million PPP loan, convertible note activities, and equity financing - The company's financial statements are prepared on a going concern basis, but management has identified substantial doubt about its ability to continue as a going concern due to a history of operating losses, negative working capital of $2.7 million, and net cash used in operations of $3.6 million as of June 30, 2020[27] - In April 2020, the company formed a joint venture, Precipio Oncometrix LLC, with Poplar Healthcare, holding a 49% interest, and consolidates the joint venture as a Variable Interest Entity (VIE)[23][32][42] - On April 23, 2020, the company received a $787,200 loan under the Paycheck Protection Program (PPP), which it believes has been used for qualifying expenses and will apply for forgiveness[52][53] - A March 2020 amendment to convertible notes triggered a down-round feature in the Series B Preferred Stock, adjusting its conversion price to $0.40 from $2.25, resulting in a non-cash deemed dividend of approximately $3.3 million[118][154] - The company relies heavily on equity financing, having raised $2.6 million in the first six months of 2020 through purchase agreements with Lincoln Park Capital[107][109][113] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, liquidity, and capital resources, covering business overview, recent developments like Nasdaq compliance and COVID-19 test market entry, and the significant going concern risk - The company regained compliance with Nasdaq's $1.00 minimum bid price requirement on June 29, 2020[213] - On July 30, 2020, the company announced an agreement with ADS Biotec to distribute its FDA-authorized COVID-19 serology antibody tests[214] - Management reiterates that there is substantial doubt about the company's ability to continue as a going concern, dependent on achieving its business plan and raising additional financing[218][219] Results of Operations Q2 2020 net sales grew 39% to $1.3 million with gross profit flat at $0.2 million, while H1 2020 net sales grew 53% to $2.5 million due to increased cases and sales force expansion Q2 2020 vs. Q2 2019 Results (in thousands) | Metric | Q2 2020 | Q2 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $1,308 | $942 | $366 | 39% | | Cost of Sales | $1,137 | $770 | $367 | 48% | | Gross Profit | $171 | $172 | ($1) | -1% | | Gross Margin | 13% | 18% | - | - | H1 2020 vs. H1 2019 Results (in thousands) | Metric | H1 2020 | H1 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $2,524 | $1,655 | $869 | 53% | | Cost of Sales | $2,228 | $1,445 | $783 | 54% | | Gross Profit | $296 | $210 | $86 | 41% | | Gross Margin | 12% | 13% | - | - | - The increase in net sales was primarily driven by a significant increase in patient diagnostic cases processed (76% in Q2 and 79% in H1), resulting from an increased sales force[222][227] Liquidity and Capital Resources As of June 30, 2020, the company had a $2.7 million working capital deficit and $0.4 million cash, relying on $2.6 million stock sales and a $0.8 million PPP loan to fund $3.6 million operating cash outflow, with substantial doubt about going concern Working Capital Position (in thousands) | Metric | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Current Assets | $2,015 | $1,878 | | Current Liabilities | $4,680 | $4,334 | | Working Capital | ($2,665) | ($2,456) | - Cash decreased by $0.5 million in H1 2020. Financing activities, including a $2.6 million stock issuance and a $0.8 million PPP loan, were crucial for funding the $3.6 million operating cash outflow[235][236][239] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Precipio is exempt from providing quantitative and qualitative disclosures about market risk - As a smaller reporting company, Precipio is exempt from providing quantitative and qualitative disclosures about market risk[245] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2020, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2020[248] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2020[249] PART II. Other Information Legal Proceedings The company reports the dismissal of the Jesse Campbell lawsuit and an unresolved $0.2 million claim from CPA Global for patent services, with a less than $0.1 million liability recorded - The Jesse Campbell lawsuit was settled and officially dismissed by the court on June 3, 2020, and this matter is now closed[252] - A claim from CPA Global for approximately $0.2 million in patent maintenance services remains unresolved. The company has recorded a liability of less than $0.1 million for this matter[251] Risk Factors Key risks include a history of losses, negative working capital, the critical need for additional capital, NASDAQ listing compliance, COVID-19 pandemic impact, and PPP loan forgiveness uncertainty - The company has a history of losses, had negative working capital of $2.7 million as of June 30, 2020, and requires substantial additional capital to continue operations and commercialize its technology[256][260] - The COVID-19 pandemic poses a significant risk, with the company having experienced business interruptions in certain urban markets ranging from 30% to 85%, and the full and ongoing impact remains uncertain[267][269] - The company regained compliance with Nasdaq's minimum bid price rule on June 29, 2020, but faces the risk of future delisting if it cannot continue to satisfy listing requirements[261][263] - The company received a $787,200 PPP loan, but there is no assurance that the loan will be forgiven in whole or in part, and repayment could adversely affect future cash flows[271][274] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[275] Defaults Upon Senior Securities Not applicable - Not applicable[276] Mine Safety Disclosures Not applicable - Not applicable[277] Other Information The company reported no other information - None[278] Exhibits This section lists exhibits filed with the report, including Sarbanes-Oxley certifications and XBRL data files - The report includes certifications from the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act, as well as XBRL data files[280]