Precision Therapeutics Inc. (formerly Skyline Medical Inc.) — FY 2017 Form 10-K
Filing identity: The supplied filing is for Precision Therapeutics Inc., not Axe Compute Inc. It covers the fiscal year ended December 31, 2017, rather than a standalone 2017 fourth quarter. The company changed its name in February 2018; its ticker changed from SKLN to AIPT.
Business context
The company sells STREAMWAY, a wall-mounted system for collecting and disposing of surgical fluids, along with procedure filters and cleaning solution. It was also expanding into precision oncology and contract research through a 25% investment in Helomics and, after year-end, formed TumorGenesis to develop patient-derived tumor models. The company described itself as early-stage and had sold 107 STREAMWAY units through year-end.
Financial performance and position
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Revenue | $654,836 | $456,495 |
| Cost of goods sold | $148,045 | $181,620 |
| Gross profit / margin | $506,791 / 77% | $274,875 / 60% |
| General and administrative expense | $6,041,485 | $5,174,799 |
| Operations expense | $1,207,724 | $1,158,117 |
| Sales and marketing expense | $1,004,175 | $467,970 |
| Net loss | $7,746,593 | $6,526,014 |
| Operating cash used | $4,459,750 | $4,381,440 |
| Investing cash used | $1,653,090 | $422,860 |
| Financing cash provided | $5,114,939 | $1,712,158 |
At December 31, 2017, cash and cash equivalents were $766,189; certificates of deposit were $244,971; current assets totaled $2.37 million; and current liabilities were $932,340. Total liabilities were $932,340, and the company reported no debt. Accumulated deficit was $54.8 million. The company reported approximately $380,000 of monthly negative operating cash flow.
Changes and unusual items
- Revenue increased about 43% year over year. The company attributed the increase to sales-force expansion and greater brand awareness; it sold ten systems in 2017 versus four in 2016.
- Gross margin rose from 60% to 77%, which management linked to completed upgrades, lower-cost components and tooling. Management expected margins to remain closer to 2017 levels.
- Net loss widened by about $1.22 million despite higher revenue. G&A rose $866,000 and sales and marketing rose $536,000, reflecting increased selling activity and other costs.
- Non-cash stock-option and warrant vesting expense was $4.04 million in 2017, versus $165,271 in 2016. The filing says removal of restrictions on options after shareholder approval drove an approximately $1.9 million compensation charge in fourth-quarter 2017.
- Investing cash use included advances to CytoBioscience and Helomics. Notes receivable at year-end included $1.07 million from CytoBioscience and amounts advanced to Helomics and for equipment.
Liquidity, outlook and risks
The auditor’s report includes an emphasis-of-matter paragraph stating that recurring losses, accumulated deficit and limited product revenue raise substantial doubt about the company’s ability to continue as a going concern. The financial statements assume continuation as a going concern. Management anticipated losses at least through the first two quarters of 2018 and said additional financing might be needed; future equity financing could dilute shareholders. There is no quantified revenue or earnings guidance in the supplied filing text.
After year-end, the company reported a January 2018 offering with approximately $2.755 million gross proceeds and an additional $188,066 net proceeds from the underwriter’s over-allotment in February. It reported cash of approximately $2.8 million at January 31, 2018. Other key risks include limited customer adoption, competition from larger medical-device companies, regulatory and intellectual-property risks, dependence on key personnel, and uncertainty about repayment or returns from investments and loans to early-stage businesses.
Other developments included a terminated 2017 merger agreement with CytoBioscience; a demand-letter matter over shareholder approval of the stock-plan amendment, subsequently approved in December 2017 and closed with Nasdaq; and a Helomics share exchange and note conversion after year-end that resulted in a reported 25% Helomics stake. The company said the Nasdaq matter was closed and it did not expect the legal matter to materially affect its finances, while acknowledging litigation uncertainty.
Important facts for investors to verify
- Confirm the issuer: this filing identifies Precision Therapeutics Inc. / former Skyline Medical Inc., not Axe Compute Inc.
- Reconcile reported post-year-end financing, cash balances and subsequent share issuances against current filings and the company’s actual liquidity needs.
- Assess whether STREAMWAY sales, installed-base growth and recurring disposable revenue can scale enough to offset operating costs and cash burn.
- Review collectability, collateral and repayment terms for CytoBioscience and Helomics notes, and the valuation and performance of the Helomics investment.
- Track dilution from offerings, preferred-stock conversions, warrants and stock options, including the substantial 2017 equity-compensation charge.