Precipio, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparative figures are for FY2022. This is an annual filing, not a standalone fourth-quarter report. Precipio is a cancer-diagnostics company operating CLIA laboratories and selling diagnostic products, including HemeScreen molecular panels and IV-Cell culture media.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net sales | $15.2 million | $9.4 million |
| Gross profit / margin | $6.0 million / 40% | $2.5 million / 27% |
| Operating expenses | $13.6 million | $15.3 million |
| Operating loss | $7.6 million | $12.8 million |
| Net loss | $5.9 million | $12.2 million |
| Net cash used in operations | $3.6 million | $7.7 million |
| Cash at year-end | $1.5 million | $3.4 million |
| Working capital at year-end | $0.5 million | $1.3 million |
- Net sales rose 61%. Diagnostic service revenue after credit-loss allowances was $12.2 million versus $8.0 million; other revenue was $3.0 million versus $1.4 million. Management attributed growth to more cases processed (6,765, up 65%) and increased HemeScreen sales.
- Gross margin improved 13 percentage points, which management attributed in part to higher case volumes and leverage of laboratory fixed costs.
- Operating expenses declined $1.7 million, primarily reflecting $2.2 million less stock-based compensation; sales and marketing expense increased $0.6 million as the product sales force expanded.
- Other income was $1.8 million, including a $1.7 million gain from writing off liabilities and a small gain on dissolution of the joint venture. These items helped reduce the reported net loss.
- Year-end total liabilities were $3.7 million, including $0.3 million of long-term debt and $0.8 million of lease liabilities. Contractual obligations totaled $3.1 million, including $1.8 million of purchase commitments, mostly due within one year. Interest expense was less than $0.1 million.
- Financing activities provided $1.7 million net cash in FY2023, including $2.2 million of net proceeds from common-stock issuance, partly offset by debt and finance-lease payments.
Material changes, outlook, and risks
- The company raised approximately $2.0 million gross in a June 2023 registered direct offering, issuing common shares and warrants. It also had an at-the-market facility; availability and share-sale capacity are subject to offering limits. Further equity financing may dilute shareholders.
- Management expects net losses through at least 2024 and anticipates higher selling, general and administrative costs as it develops markets and expands product sales and support. The filing provides no specific revenue or earnings guidance.
- The auditor’s report includes a going-concern explanatory paragraph. Management and the auditor state that substantial doubt exists about the company’s ability to continue as a going concern for the twelve months following issuance of the financial statements. Continued operations depend on executing the business plan, generating revenue and obtaining financing; available resources may be insufficient.
- Key risks include limited liquidity and dependence on additional capital; customer and receivables concentration; payer reimbursement and collections; competition and product adoption; and possible FDA regulation of research-use-only products and laboratory-developed tests. The FDA had proposed a phased LDT oversight rule, whose final content and timing were uncertain in the filing.
- The company disclosed overdue vendor and supplier payables and threatened collection actions. It recorded a $1.7 million gain after writing off certain payables and accrued expenses. It also disclosed legal matters incidental to the business; management considered the likelihood of an adverse outcome remote, but outcomes remain uncertain.
- Precipio completed a 1-for-20 reverse stock split in September 2023. It reported 1,420,125 common shares outstanding at year-end and 1,430,292 as of March 24, 2024; outstanding warrants and options create additional potential dilution.
- Management concluded disclosure controls and internal control over financial reporting were effective at December 31, 2023. The auditor did not provide an opinion on internal control effectiveness, as the company is not required to obtain an auditor attestation.
Important facts for investors to verify
- Current cash runway, near-term payment needs, and whether additional financing can be obtained on acceptable terms without substantial dilution.
- Whether case-volume growth and HemeScreen product sales continue, and whether improved gross margin is sustainable.
- Collections and payer mix, including the significant contractual allowances and credit-loss allowance against receivables.
- Status and amount of overdue vendor obligations, threatened claims, and any further liability settlements or write-offs.
- Potential regulatory requirements and compliance costs for RUO products, LDTs, and EU/UK product certifications.
- Potential dilution from outstanding warrants, options, and remaining equity-offering capacity.