Precipio, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are with FY 2021. This is an annual filing, not a standalone fourth-quarter report. Precipio (Nasdaq: PRPO) develops and sells blood-cancer diagnostic services, reagents and products, including HemeScreen and IV-Cell.
Key financial results
| Metric | FY 2022 | FY 2021 | Change |
|---|---|---|---|
| Net sales | $9.4 million | $8.8 million | Up 6% |
| Gross profit / margin | $2.5 million / 27% | $2.4 million / 27% | Margin unchanged |
| Operating expenses | $15.3 million | $12.0 million | Up $3.3 million |
| Operating loss | $12.8 million | $9.6 million | Loss widened |
| Net loss attributable to Precipio common stockholders | $12.2 million | $8.5 million | Loss widened |
| Basic and diluted loss per share | $0.54 | $0.40 | Loss per share increased |
| Net cash used in operating activities | $7.7 million | $6.6 million | Cash use increased |
| Cash at year-end | $3.4 million | $11.7 million | Down $8.2 million |
| Working capital | $1.3 million | $9.3 million | Down $7.9 million |
Service revenue after doubtful-account adjustments was $8.0 million, while other revenue was $1.4 million. Patient diagnostic service revenue rose modestly despite a 5% decline in cases billed, which management attributed to improved reimbursement rates. Other revenue increased mainly from the HemeScreen Reagent Rental program. Operating expense growth included higher sales and marketing costs, R&D spending, and stock-based compensation, which rose to $3.8 million from $1.9 million.
At December 31, 2022, reported long-term debt was $0.4 million before presentation of current maturities and debt issuance costs; lease liabilities totaled $1.0 million. Contractual obligations, including debt, leases and purchase commitments, totaled $2.9 million, of which $1.7 million was due within one year. Interest expense was $12,000. The company reported no income tax expense and maintained a full valuation allowance against deferred tax assets.
Material changes and operating developments
- Net sales grew 6%, but the operating loss widened as operating expenses rose faster than gross profit.
- Cash and working capital declined substantially; 2022 financing cash flows were negative $0.2 million, compared with $16.3 million provided in 2021, when equity issuance was a major funding source.
- R&D expense increased to $1.7 million from $1.3 million. The company continued commercializing HemeScreen and IV-Cell and expected additional HemeScreen panels in 2023.
- Precipio said it was working with Poplar to dissolve its consolidated joint venture with an effective date of December 31, 2022.
Outlook, risks and unusual items
- Going concern: The auditor’s report and management disclosed substantial doubt about the company’s ability to continue as a going concern for the 12 months after the financial statements were issued. Management estimated existing cash and equivalents would fund operating and capital needs through the first half of 2023, but warned that assumptions could prove incorrect. The company expected losses to continue through at least 2023.
- Financing and dilution: The company had received about $16.0 million in gross proceeds from its $22.0 million ATM agreement through the financial-statement issuance date, leaving approximately $6.0 million available, subject to offering limits and market conditions. On March 27, 2023, it entered a receivables factoring agreement with a $2.0 million limit. The arrangement advances 85% of purchased receivables, charges fees, may require repurchase of certain receivables, and is secured by substantially all company assets.
- Liquidity and execution risks: The filing highlights continued operating losses, reliance on external financing, customer receivable concentration, payer reimbursement and collection uncertainty, and the possibility of further equity dilution. One customer represented about 12% of year-end 2022 accounts receivable; no customer represented at least 10% of annual revenue in 2022 or 2021.
- Regulatory and commercial risks: HemeScreen products are sold as research-use-only products; the FDA had contacted the company about HemeScreen in 2021, after which labeling was revised. The company also cited uncertainty around future FDA oversight of laboratory-developed tests and the need to obtain EU IVDR recertification to continue marketing in the EU after the applicable transition period.
- Listing and legal matters: Nasdaq notified the company in October 2022 that its share price was below the $1.00 minimum bid requirement, with an initial compliance deadline of April 26, 2023. The filing also describes overdue vendor payables and threatened collection actions, as well as a vendor claim concerning patent services; management recorded a liability below $0.1 million for that claim.
- Unusual non-cash items: 2022 other income included $0.6 million from warrant revaluation and a $25,000 gain on settlement of liability. In 2021, other income included an $0.8 million PPP loan-forgiveness gain and $0.3 million from warrant revaluation.
- Audit and controls: The auditor issued an unqualified opinion on the financial statements with a going-concern explanatory paragraph. Management concluded disclosure controls and internal control over financial reporting were effective as of year-end; the auditor was not engaged to audit internal control.
The filing does not provide formal numeric revenue or earnings guidance. Management’s stated outlook was continued losses through at least 2023 and an estimated cash runway through the first half of 2023, subject to financing and operating assumptions.
Important facts for investors to verify
- Current cash runway, actual operating cash burn, and whether subsequent financing or factoring has been sufficient to meet obligations.
- Availability and potential dilution from the remaining ATM capacity, and the fees, recourse provisions, collateral and actual usage of the Culain factoring facility.
- Progress toward sustained revenue growth, improved laboratory case volumes and gross margins, and commercial adoption of HemeScreen and IV-Cell.
- Status of Nasdaq minimum-bid compliance and any resulting listing actions.
- Regulatory developments affecting RUO products, laboratory-developed tests and EU IVDR recertification.
- Resolution of the Poplar joint venture, vendor payment disputes and other contingencies.