Precipio(PRPO) - 2020 Q4 - Annual Report

Part I Business Precipio, Inc. is a cancer diagnostics company focused on mitigating misdiagnosis through a platform combining academic expertise with proprietary technologies - The company operates as a cancer diagnostics and reagent technology provider, aiming to reduce cancer misdiagnosis by leveraging academic expertise and proprietary technologies[15] - Precipio's key proprietary products include IV-Cell™ (a universal cell culture media), HemeScreen™ (genetic diagnostic panels for blood cancers), and the exclusively licensed ICE-COLD-PCR™ (a liquid biopsy specimen enrichment technology)[24][31][41] - The company targets the US domestic oncology market (over $20 billion annually) and the oncology reagent market (over $14 billion annually)[21] - In April 2020, Precipio formed a joint venture with Poplar Healthcare to provide oncology services to office-based physicians and medical centers[17] Employee Distribution as of March 25, 2021 | Department | Number of Employees | | :--- | :--- | | Full-time | 54 | | Finance, General & Administration | 12 | | Laboratory Operations | 21 | | Sales and Marketing | 10 | | Customer Service and Support | 5 | | Research & Development | 9 | | Part-time | 3 | Risk Factors The company faces significant risks, including substantial doubt about its ability to continue as a going concern, requiring additional financing, and intense competition - There is substantial doubt about the company's ability to continue as a going concern, having incurred a net loss of $10.6 million and negative working capital of $0.5 million for the year ended December 31, 2020[80] - The company requires significant additional financing to sustain operations, with a purchase agreement with Lincoln Park for up to $10 million in common stock to fund working capital needs[83][84] - The COVID-19 pandemic has caused business interruptions ranging from 30% to 85% in certain markets, and the ongoing impact remains uncertain[108][110] - The company faces intense competition from specialized oncology service providers like Neogenomics and large commercial labs like LabCorp and Quest Diagnostics[51][102] - The company's laboratories require ongoing CLIA certification, and failure to comply could result in suspension of operations and loss of Medicare/Medicaid reimbursement[130][131] - The company received a PPP loan of $787,200, and if forgiveness is not granted by the SBA, the loan will need to be repaid, which could adversely affect cash flows[124][125] Unresolved Staff Comments The company reports no unresolved staff comments - None[187] Properties Precipio leases approximately 7,630 sq. ft. of lab and office space in New Haven, CT, and 5,300 sq. ft. in Omaha, NE, which are deemed adequate for current needs - Leases office and laboratory space in New Haven, Connecticut (7,630 sq. ft, lease expires Dec 2021) and Omaha, Nebraska (5,300 sq. ft, lease expires May 2022)[188] Legal Proceedings The company is involved in incidental legal proceedings, including an unresolved claim from CPA Global and a settled lawsuit with Jesse Campbell - CPA Global claims approximately $0.2 million for patent maintenance services; the company has recorded a liability of less than $0.1 million[193] - The Jesse Campbell lawsuit from 2017 was settled for $1.95 million, with the company paying $0.27 million and its insurance covering the rest, closing the matter in June 2020[194][196] Mine Safety Disclosures This item is not applicable to the company - Not Applicable[197] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the NASDAQ Capital Market under "PRPO", with 18,132,063 shares outstanding as of March 25, 2021, and no cash dividends paid or anticipated - Common stock trades on the NASDAQ Capital Market under the symbol "PRPO"[200] - As of March 25, 2021, there were 18,132,063 shares of common stock outstanding[201] - The company has never paid cash dividends and does not anticipate paying them in the foreseeable future[202] Quarterly Stock Price (2020) | Quarter Ended | High | Low | | :--- | :--- | :--- | | March 31, 2020 | $2.30 | $0.68 | | June 30, 2020 | $1.51 | $0.58 | | September 30, 2020 | $7.00 | $1.16 | | December 31, 2020 | $2.64 | $1.94 | Selected Consolidated Financial Data As a smaller reporting company, Precipio is not required to provide the information for this item - The company is a smaller reporting company and is not required to provide this information[205] Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal year 2020, Precipio's net sales increased by 95% to $6.1 million, driven by a 120% increase in patient diagnostic cases, despite reporting a net loss of $10.6 million and a working capital deficit of $0.5 million Results of Operations (2020 vs. 2019) | Metric (in thousands) | 2020 | 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $6,092 | $3,127 | $2,965 | 95% | | Gross Profit | $1,150 | $219 | $931 | 425% | | Gross Margin | 19% | 7% | - | - | | Operating Loss | ($9,146) | ($10,994) | $1,848 | (17%) | | Net Loss | ($10,598) | ($13,243) | $2,645 | (20%) | - The 95% increase in net sales was primarily due to a 120% increase in patient diagnostic cases processed, from 1,672 in 2019 to 3,677 in 2020[227] - The company's financial condition raises substantial doubt about its ability to continue as a going concern, with a net loss of $10.6 million, negative working capital of $0.5 million, and $7.4 million cash used in operations as of December 31, 2020[221][222] - To address liquidity, the company relies on an equity purchase agreement with Lincoln Park (of which $8.8 million has been drawn), a $0.8 million PPP loan, and an effective S-3 registration to offer up to $50 million in securities[225] Working Capital (in thousands) | | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Current Assets | $4,204 | $1,878 | | Current Liabilities | $4,656 | $4,334 | | Working Capital | ($452) | ($2,456) | Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Precipio is not required to provide the information for this item - The company is a smaller reporting company and is not required to provide this information[262] Financial Statements and Supplementary Data The consolidated financial statements for 2020 and 2019 are presented, with the auditor's report highlighting substantial doubt about the company's going concern ability and identifying critical audit matters - The independent auditor's report includes an explanatory paragraph expressing substantial doubt about the Company's ability to continue as a going concern due to significant working capital deficiency and recurring losses[266] - Critical Audit Matters identified by the auditor include: 1) Assessment of the estimation for collections over diagnostic testing revenue, and 2) Evaluation of changes in convertible debt to determine proper accounting treatment (extinguishment)[273][276] Consolidated Balance Sheet Summary (in thousands) | | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $4,204 | $1,878 | | Total Assets | $20,713 | $19,511 | | Total Current Liabilities | $4,656 | $4,334 | | Total Liabilities | $6,551 | $6,306 | | Total Stockholders' Equity | $14,162 | $13,205 | Consolidated Statement of Operations Summary (in thousands) | | 2020 | 2019 | | :--- | :--- | :--- | | Net Sales | $6,092 | $3,127 | | Gross Profit | $1,150 | $219 | | Operating Loss | ($9,146) | ($10,994) | | Net Loss | ($10,598) | ($13,243) | | Basic and Diluted Loss Per Share | ($0.85) | ($2.33) | Consolidated Cash Flow Summary (in thousands) | | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | ($7,434) | ($9,141) | | Net cash used in investing activities | ($96) | ($55) | | Net cash provided by financing activities | $9,338 | $9,663 | | Net Change in Cash | $1,808 | $467 | | Cash at End of Period | $2,656 | $848 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[512] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020, with no material changes during the fourth quarter - Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2020[515] - Management concluded that internal control over financial reporting was effective as of December 31, 2020[517] - No material changes were made to internal control over financial reporting during the quarter ended December 31, 2020[519] Other Information The company reports no other information for this item - None[521] Part III Directors, Executive Officers and Corporate Governance Information for this item will be included in the company's definitive 2021 Proxy Statement, incorporated by reference - Information is incorporated by reference from the forthcoming 2021 Proxy Statement[524] Executive Compensation Information for this item will be included in the company's definitive 2021 Proxy Statement, incorporated by reference - Information is incorporated by reference from the forthcoming 2021 Proxy Statement[525] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item will be included in the company's definitive 2021 Proxy Statement, incorporated by reference - Information is incorporated by reference from the forthcoming 2021 Proxy Statement[526] Certain Relationships and Related Transactions, and Director Independence Information for this item will be included in the company's definitive 2021 Proxy Statement, incorporated by reference - Information is incorporated by reference from the forthcoming 2021 Proxy Statement[527] Principal Accountant Fees and Services Information for this item will be included in the company's definitive 2021 Proxy Statement, incorporated by reference - Information is incorporated by reference from the forthcoming 2021 Proxy Statement[528] Part IV Exhibits, Financial Statement Schedules This section lists the documents filed as part of the report, including financial statements and a list of 30 exhibits such as material contracts and officer certifications - The financial statements listed under Item 8 are filed as part of this report[531] - All financial statement schedules are omitted as they are inapplicable or the information is included in the notes to the financial statements[534] - A list of 30 exhibits is provided, including material contracts, corporate charters, and officer certifications[535][536][537] Form 10-K Summary The company reports no Form 10-K summary - None[539]