SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20222023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________________ to _________________________
Commission File Number: 001-36790
Predictive Oncology Inc.
(Exact name of registrant as specified in its charter)
Delaware | 33-1007393 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
|
| |
(Address of principal executive offices) | (Zip Code) |
651-389-4800(412) 432-1500
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report) | ||
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common stock, $0.01 par value | POAI | Nasdaq Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer ☒ | Smaller reporting company ☒ |
Emerging growth company ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes ☒ No
As of November 4, 2022,6, 2023, the registrant had 78,753,4754,063,081 shares of common stock, par value $0.01 per share outstanding.
On April 24, 2023, the registrant effected a 1-for-20 reverse stock split. All share amounts and references to stock prices, except par value, have been retroactively restated to reflect the reverse split.
PREDICTIVE ONCOLOGY INC.
TABLE OF CONTENTS
Item 1. Condensed Consolidated Financial Statements
PREDICTIVE ONCOLOGY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, 2022 | December 31, 2021 | |||||||
(unaudited) | (audited) | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and Cash Equivalents | $ | 25,393,738 | $ | 28,202,615 | ||||
Accounts Receivable | 324,708 | 354,196 | ||||||
Inventories | 493,722 | 387,684 | ||||||
Prepaid Expense and Other Assets | 645,153 | 513,778 | ||||||
Total Current Assets | 26,857,321 | 29,458,273 | ||||||
Fixed Assets, net | 2,202,102 | 2,511,571 | ||||||
Intangibles, net | 3,701,603 | 3,962,118 | ||||||
Lease Right-of-Use Assets | 329,565 | 814,454 | ||||||
Other Long-Term Assets | 75,618 | 167,065 | ||||||
Goodwill | - | 6,857,790 | ||||||
Total Assets | $ | 33,166,209 | 43,771,271 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts Payable | $ | 917,271 | $ | 1,021,774 | ||||
Accrued Expenses and other liabilities | 1,813,580 | 1,262,641 | ||||||
Derivative Liability | 22,099 | 129,480 | ||||||
Contract Liabilities | 495,365 | 186,951 | ||||||
Lease Liability | 219,763 | 639,662 | ||||||
Total Current Liabilities | 3,468,078 | 3,240,508 | ||||||
Lease Liability – Net of current portion | 5,483 | 239,664 | ||||||
Other long-term liabilities | 99,770 | 25,415 | ||||||
Total Liabilities | 3,573,331 | 3,505,587 | ||||||
Stockholders’ Equity: | ||||||||
Preferred Stock, 20,000,000 authorized inclusive of designated below | ||||||||
Series B Convertible Preferred Stock, $.01 par value, 2,300,000 shares authorized, 79,246 shares outstanding | 792 | 792 | ||||||
Common Stock, $.01 par value, 200,000,000 shares authorized, 78,407,473 and 65,614,597 outstanding | 784,074 | 656,146 | ||||||
Additional paid-in capital | 174,669,817 | 167,649,028 | ||||||
Accumulated Deficit | (145,861,805 | ) | (128,040,282 | ) | ||||
Total Stockholders’ Equity | 29,592,878 | 40,265,684 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 33,166,209 | $ | 43,771,271 | ||||
September 30, 2023 | December 31, 2022 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 11,915,048 | $ | 22,071,523 | ||||
Accounts receivable | 544,756 | 331,196 | ||||||
Inventories | 439,989 | 430,493 | ||||||
Prepaid expense and other assets | 620,692 | 526,801 | ||||||
Total current assets | 13,520,485 | 23,360,013 | ||||||
Property and equipment, net | 1,392,681 | 1,833,255 | ||||||
Intangibles, net | 259,320 | 253,865 | ||||||
Lease right-of-use assets | 2,870,286 | 211,893 | ||||||
Other long-term assets | 124,096 | 75,618 | ||||||
Total assets | $ | 18,166,868 | $ | 25,734,644 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,168,226 | $ | 943,452 | ||||
Note payable | 260,220 | - | ||||||
Accrued expenses and other liabilities | 1,810,838 | 2,229,075 | ||||||
Derivative liability | 2,109 | 13,833 | ||||||
Contract liabilities | 374,957 | 602,073 | ||||||
Lease liability | 555,541 | 94,237 | ||||||
Total current liabilities | 4,171,891 | 3,882,670 | ||||||
Lease liability – net of current portion | 2,343,622 | 86,082 | ||||||
Total liabilities | 6,515,513 | 3,968,752 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, 20,000,000 shares authorized inclusive of designated below | ||||||||
Series B Convertible Preferred Stock, $.01 par value, 2,300,000 shares authorized, 79,246 shares outstanding as of September 30, 2023 and December 31, 2022 | 792 | 792 | ||||||
Common stock, $.01 par value, 200,000,000 shares authorized, 4,033,293 and 3,938,160 shares outstanding as of September 30, 2023 and December 31, 2022, respectively | 40,333 | 39,382 | ||||||
Additional paid-in capital | 175,896,766 | 175,503,634 | ||||||
Accumulated deficit | (164,286,536 | ) | (153,777,916 | ) | ||||
Total stockholders’ equity | 11,651,355 | 21,765,892 | ||||||
Total liabilities and stockholders’ equity | $ | 18,166,868 | $ | 25,734,644 | ||||
See Notesaccompanying notes to Condensed Consolidated Financial Statementsunaudited condensed consolidated financial statements.
PREDICTIVE ONCOLOGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF NET LOSS
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
Revenue | $ | 455,827 | $ | 313,663 | $ | 1,141,986 | $ | 944,187 | $ | 715,056 | $ | 455,827 | $ | 1,445,061 | $ | 1,141,986 | ||||||||||||||||
Cost of goods sold | 108,151 | 110,165 | 351,669 | 350,800 | 106,940 | 108,151 | 386,840 | 351,669 | ||||||||||||||||||||||||
Gross profit | 347,676 | 203,498 | 790,317 | 593,387 | ||||||||||||||||||||||||||||
Gross margin | 608,116 | 347,676 | 1,058,221 | 790,317 | ||||||||||||||||||||||||||||
General and administrative expense | 3,287,918 | 2,061,458 | 8,063,265 | 7,410,208 | 2,583,574 | 3,287,918 | 7,624,085 | 8,063,265 | ||||||||||||||||||||||||
Operations expense | 857,130 | 648,935 | 2,657,314 | 1,791,543 | 842,579 | 857,130 | 2,714,139 | 2,657,314 | ||||||||||||||||||||||||
Sales and marketing expense | 333,377 | 172,869 | 908,867 | 447,298 | 336,043 | 333,377 | 1,135,383 | 908,867 | ||||||||||||||||||||||||
Loss on goodwill impairment | - | 2,813,792 | 7,231,093 | 2,813,792 | ||||||||||||||||||||||||||||
Loss on impairment of goodwill | - | - | - | 7,231,093 | ||||||||||||||||||||||||||||
Loss on impairment of property and equipment | - | - | 162,905 | - | ||||||||||||||||||||||||||||
Total operating loss | (4,130,749 | ) | (5,493,556 | ) | (18,070,222 | ) | (11,869,454 | ) | (3,154,080 | ) | (4,130,749 | ) | (10,578,291 | ) | (18,070,222 | ) | ||||||||||||||||
Other income | 63,047 | 58,830 | 146,524 | 144,122 | 47,838 | 63,047 | 118,618 | 146,524 | ||||||||||||||||||||||||
Other expense | (2,001 | ) | (7,413 | ) | (5,207 | ) | (244,214 | ) | (60,671 | ) | (2,001 | ) | (60,671 | ) | (5,207 | ) | ||||||||||||||||
Gain on derivative instruments | 10,219 | 4,122 | 107,381 | 68,884 | 3,463 | 10,219 | 11,724 | 107,381 | ||||||||||||||||||||||||
Net loss | $ | (4,059,484 | ) | $ | (5,438,017 | ) | $ | (17,821,524 | ) | $ | (11,900,662 | ) | $ | (3,163,450 | ) | $ | (4,059,484 | ) | $ | (10,508,620 | ) | $ | (17,821,524 | ) | ||||||||
Net loss attributable to common shareholders per common shares-basic and diluted | $ | (4,059,484 | ) | $ | (5,438,017 | ) | $ | (17,821,524 | ) | $ | (11,900,662 | ) | ||||||||||||||||||||
Loss per common share basic and diluted | $ | (0.05 | ) | $ | (0.08 | ) | $ | (0.25 | ) | $ | (0.23 | ) | ||||||||||||||||||||
Net loss per common share – basic and diluted | $ | (0.78 | ) | $ | (1.04 | ) | $ | (2.63 | ) | $ | (4.95 | ) | ||||||||||||||||||||
Weighted average shared used in computation – basic and diluted | 78,383,878 | 65,406,312 | 71,084,454 | 51,272,960 | ||||||||||||||||||||||||||||
Weighted average shares used in computation – basic and diluted | 4,031,356 | 3,919,203 | 3,998,887 | 3,602,515 | ||||||||||||||||||||||||||||
See Notesaccompanying notes to Condensed Consolidated Financial Statements
unaudited condensed consolidated financial statements.
PREDICTIVE ONCOLOGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 20222023
(Unaudited)
Series B Preferred | Common Stock | Additional Paid-In | Accumulated | |||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
Balance at 12/31/2021 | 79,246 | $ | 792 | 65,614,597 | $ | 656,146 | $ | 167,649,028 | $ | (128,040,282 | ) | $ | 40,265,684 | |||||||||||||||
Shares issued pursuant to equity line | 120,000 | 1,200 | 85,685 | 86,885 | ||||||||||||||||||||||||
Shares issued to consultant & other | 171,868 | 1,719 | 160,403 | 162,122 | ||||||||||||||||||||||||
Vesting expense | 36,518 | 36,518 | ||||||||||||||||||||||||||
Net loss | (3,370,715 | ) | (3,370,715 | ) | ||||||||||||||||||||||||
Balance at 03/31/2022 | 79,246 | $ | 792 | 65,906,465 | $ | 659,065 | $ | 167,931,634 | $ | (131,410,997 | ) | $ | 37,180,494 | |||||||||||||||
Issuance of shares and warrants pursuant to May 2022 Private Offering | 12,000,000 | 120,000 | 6,387,050 | 6,507,050 | ||||||||||||||||||||||||
Shares issued pursuant to equity line | 195,000 | 1,950 | 147,174 | 149,124 | ||||||||||||||||||||||||
Shares issued to consultant & other | 53,662 | 536 | 50,134 | 50,670 | ||||||||||||||||||||||||
Vesting expense | 39,383 | 39,383 | ||||||||||||||||||||||||||
Net loss | (10,391,324 | ) | (10,391,324 | ) | ||||||||||||||||||||||||
Balance at 06/30/2022 | 79,246 | $ | 792 | 78,155,127 | $ | 781,551 | $ | 174,555,375 | $ | (141,802,321 | ) | $ | 33,535,397 | |||||||||||||||
Shares issued to consultant & other | 229,212 | 2,292 | 91,708 | 94,000 | ||||||||||||||||||||||||
Vesting expense | 23,134 | 231 | 22,734 | 22,965 | ||||||||||||||||||||||||
Net loss | (4,059,484 | ) | (4,059,484 | ) | ||||||||||||||||||||||||
Balance at 09/30/2022 | 79,246 | $ | 792 | 78,407,473 | $ | 784,074 | $ | 174,669,817 | $ | (145,861,805 | ) | $ | 29,592,878 | |||||||||||||||
| Series B Preferred | Series F Preferred | Common Stock | Additional Paid-In | Accumulated | ||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||||||
Balance at 12/31/2022 | 79,246 | $ | 792 | - | $ | - | 3,938,160 | $ | 39,382 | $ | 175,503,634 | $ | (153,777,916 | ) | $ | 21,765,892 | ||||||||||||||||||||
Shares issued to consultants and others | - | - | - | - | 31,833 | 318 | 200,690 | - | 201,008 | |||||||||||||||||||||||||||
Vesting expense, net of forfeitures | - | - | - | - | - | - | 9,287 | - | 9,287 | |||||||||||||||||||||||||||
Series F Preferred Stock dividend | - | - | 79,404 | 794 | - | - | (794 | ) | - | - | ||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | (3,421,802 | ) | (3,421,802 | ) | |||||||||||||||||||||||||
Balance at 03/31/2023 | 79,246 | $ | 792 | 79,404 | $ | 794 | 3,969,993 | $ | 39,700 | $ | 175,712,817 | $ | (157,199,718 | ) | $ | 18,554,385 | ||||||||||||||||||||
Shares issued to consultants and others | - | - | - | - | 10,965 | 110 | 68,058 | - | 68,168 | |||||||||||||||||||||||||||
Vesting expense, net of forfeitures | - | - | - | - | - | - | 5,872 | - | 5,872 | |||||||||||||||||||||||||||
Shares issued in connection with reverse stock split | - | - | - | - | 25,343 | 253 | (253 | ) | - | - | ||||||||||||||||||||||||||
Series F Preferred Stock redemption | - | - | (79,404 | ) | (794 | ) | - | - | 794 | - | - | |||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | (3,923,368 | ) | (3,923,368 | ) | |||||||||||||||||||||||||
Balance at 06/30/2023 | 79,246 | $ | 792 | - | $ | - | 4,006,301 | $ | 40,063 | $ | 175,787,288 | $ | (161,123,086 | ) | $ | 14,705,057 | ||||||||||||||||||||
Shares issued to consultants and others | - | - | - | - | 25,835 | 258 | 125,299 | - | 125,557 | |||||||||||||||||||||||||||
Vesting expense, net of forfeitures | - | - | - | - | - | - | (14,300 | ) | (14,300 | ) | ||||||||||||||||||||||||||
Shares issued to management for vesting of restricted stock units, net of repurchase to cover withholding tax | - | - | - | - | 1,157 | 12 | (1,521 | ) | - | (1,509 | ) | |||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | (3,163,450 | ) | (3,163,450 | ) | |||||||||||||||||||||||||
Balance at 09/30/2023 | 79,246 | $ | 792 | - | $ | - | 4,033,293 | $ | 40,333 | $ | 175,896,766 | $ | (164,286,536 | ) | $ | 11,651,355 | ||||||||||||||||||||
See Notesaccompanying notes to Condensed Consolidated Financial Statements
unaudited condensed consolidated financial statements.
PREDICTIVE ONCOLOGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 20212022
(Unaudited)
Series B Preferred | Common Stock | Additional Paid-In | Accumulated | |||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
Balance at 12/31/2020 | 79,246 | $ | 792 | 19,804,787 | $ | 198,048 | $ | 110,826,949 | $ | (108,383,108 | ) | $ | 2,642,681 | |||||||||||||||
Shares issued pursuant to agreement with former CEO related to accrued interest | 100,401 | 1,004 | 142,569 | 143,573 | ||||||||||||||||||||||||
Issuance of shares and warrants pursuant to Shelf offerings, net | 13,488,098 | 134,881 | 14,877,611 | 15,012,492 | ||||||||||||||||||||||||
Issuance of shares and warrants pursuant to February 2021 private placement, net | 9,043,766 | 90,438 | 15,974,301 | 16,064,739 | ||||||||||||||||||||||||
Exercise of warrants | 5,247,059 | 52,471 | 4,442,799 | 4,495,270 | ||||||||||||||||||||||||
Shares issued pursuant to convertible debt | 1,107,544 | 11,075 | 502,936 | 514,011 | ||||||||||||||||||||||||
Shares issued to consultant & other | 2,665 | 27 | (4,075 | ) | (4,048 | ) | ||||||||||||||||||||||
Vesting expense | 565,082 | 565,082 | ||||||||||||||||||||||||||
Net loss | (3,888,713 | ) | (3,888,713 | ) | ||||||||||||||||||||||||
Balance at 03/31/2021 | 79,246 | $ | 792 | 48,794,320 | $ | 487,944 | $ | 147,328,172 | $ | (112,271,821 | ) | $ | 35,545,087 | |||||||||||||||
Issuance of shares and warrants pursuant to June 2021 direct placement, net | 15,520,911 | 155,209 | 19,291,087 | 19,446,296 | ||||||||||||||||||||||||
Shares issued pursuant to transition agreement with former CEO | 400,000 | 4,000 | (4,000 | ) | - | |||||||||||||||||||||||
Shares issued pursuant to Equity Line | 572,504 | 5,725 | 582,865 | 588,590 | ||||||||||||||||||||||||
Shares issued to consultant & other | 47,424 | 474 | 48,238 | 48,802 | ||||||||||||||||||||||||
Vesting expense | 33,243 | 33,243 | ||||||||||||||||||||||||||
Net loss | (2,573,932 | ) | (2,573,932 | ) | ||||||||||||||||||||||||
Balance at 06/30/2021 | 79,246 | $ | 792 | 65,335,159 | $ | 653,352 | $ | 167,279,695 | $ | (114,845,753 | ) | $ | 53,088,086 | |||||||||||||||
Exercise of warrants | 22,000 | 220 | 18,370 | 18,590 | ||||||||||||||||||||||||
Shares issued to consultant & other | 77,191 | 772 | 97,997 | 98,769 | ||||||||||||||||||||||||
Vesting expense | 23,134 | 231 | 17,247 | 17,478 | ||||||||||||||||||||||||
Net loss | (5,438,017 | ) | (5,438,017 | ) | ||||||||||||||||||||||||
Balance at 09/30/2021 | 79,246 | $ | 792 | 65,457,484 | $ | 654,575 | $ | 167,413,309 | $ | (120,283,770 | ) | $ | 47,784,906 | |||||||||||||||
| Series B Preferred | Common Stock | Additional Paid-In | Accumulated | |||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
Balance at 12/31/2021 | 79,246 | $ | 792 | 3,280,750 | $ | 32,808 | $ | 168,272,366 | $ | (128,040,282 | ) | $ | 40,265,684 | |||||||||||||||
Shares issued pursuant to equity line | - | - | 6,000 | 60 | 86,825 | - | 86,885 | |||||||||||||||||||||
Shares issued to consultants and others | - | - | 8,595 | 86 | 162,036 | - | 162,122 | |||||||||||||||||||||
Vesting expense, net of forfeitures | - | - | - | - | 36,518 | - | 36,518 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (3,370,715 | ) | (3,370,715 | ) | |||||||||||||||||||
Balance at 03/31/2022 | 79,246 | $ | 792 | 3,295,345 | $ | 32,954 | $ | 168,557,745 | $ | (131,410,997 | ) | $ | 37,180,494 | |||||||||||||||
Issuance of shares and warrants pursuant to May 2022 Private Offering | - | - | 600,000 | 6,000 | 6,501,050 | - | 6,507,050 | |||||||||||||||||||||
Shares issued pursuant to Equity Line | - | - | 9,750 | 98 | 149,026 | - | 149,124 | |||||||||||||||||||||
Shares issued to consultants and others | - | - | 2,684 | 27 | 50,643 | - | 50,670 | |||||||||||||||||||||
Vesting expense, net of forfeitures | - | - | - | - | 39,383 | - | 39,383 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (10,391,324 | ) | (10,391,324 | ) | |||||||||||||||||||
Balance at 06/30/2022 | 79,246 | $ | 792 | 3,907,779 | $ | 39,079 | $ | 175,297,847 | $ | (141,802,321 | ) | $ | 33,535,397 | |||||||||||||||
Shares issued to consultant & other | - | - | 11,461 | 115 | 93,885 | - | 94,000 | |||||||||||||||||||||
Vesting expense, net of forfeitures | - | - | 1,157 | 12 | 22,953 | - | 22,965 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (4,059,484 | ) | (4,059,484 | ) | |||||||||||||||||||
Balance at 09/30/2022 | 79,246 | $ | 792 | 3,920,397 | $ | 39,206 | $ | 175,414,685 | $ | (145,861,805 | ) | $ | 29,592,878 | |||||||||||||||
See Notesaccompanying notes to Condensed Consolidated Financial Statementsunaudited condensed consolidated financial statements.
PREDICTIVE ONCOLOGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended | ||||||||||||||||
Nine Months Ended | September 30, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Cash flow from operating activities: | ||||||||||||||||
Net loss | $ | (17,821,524 | ) | $ | (11,900,662 | ) | $ | (10,508,620 | ) | $ | (17,821,524 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
Depreciation and amortization | 980,381 | 970,488 | 580,976 | 980,381 | ||||||||||||
Vesting expense | 102,894 | 627,329 | 859 | 102,894 | ||||||||||||
Amortization of debt discount | - | 244,830 | ||||||||||||||
Common stock issued for consulting and other | 204,839 | 306,792 | ||||||||||||||
Gain on valuation of equity-linked instruments and derivative liability | (107,381 | ) | (68,884 | ) | (11,724 | ) | (107,381 | ) | ||||||||
Equity instruments issued consultant, and other | 306,792 | 143,523 | ||||||||||||||
Loss on fixed asset disposal | 1,700 | 5,858 | ||||||||||||||
Loss on goodwill impairment | 7,231,093 | 2,813,792 | ||||||||||||||
Loss on impairment of goodwill | - | 7,231,093 | ||||||||||||||
Loss on impairment of property and equipment | 162,905 | - | ||||||||||||||
Loss on property and equipment disposal | 903 | 1,700 | ||||||||||||||
Changes in assets and liabilities: | ||||||||||||||||
Accounts receivable | 29,488 | (18,315 | ) | (213,560 | ) | 29,488 | ||||||||||
Inventories | (106,038 | ) | (108,441 | ) | (9,496 | ) | (106,038 | ) | ||||||||
Prepaid expense and other assets | (39,928 | ) | (313,573 | ) | (142,369 | ) | (39,928 | ) | ||||||||
Accounts payable | (104,503 | ) | (342,525 | ) | 224,774 | (104,503 | ) | |||||||||
Accrued expenses and other liabilities | 476,035 | (412,952 | ) | |||||||||||||
Accrued expenses | (169,401 | ) | 476,035 | |||||||||||||
Contract liabilities | (64,889 | ) | 99,518 | (227,116 | ) | (64,889 | ) | |||||||||
Other long-term liabilities | (19,932 | ) | (204,807 | ) | - | (19,932 | ) | |||||||||
Net cash used in operating activities: | (9,135,812 | ) | (8,464,821 | ) | (10,107,030 | ) | (9,135,812 | ) | ||||||||
Cash flow from investing activities: | ||||||||||||||||
Purchase of fixed assets | (361,916 | ) | (714,534 | ) | ||||||||||||
Loan activities | (55,000 | ) | ||||||||||||||
Purchase of property and equipment | (283,648 | ) | (361,916 | ) | ||||||||||||
Acquisition of intangibles | (50,180 | ) | (50,699 | ) | (26,018 | ) | (50,180 | ) | ||||||||
Net cash used in investing activities | (412,096 | ) | (820,233 | ) | ||||||||||||
Net cash used in investing activities: | (309,666 | ) | (412,096 | ) | ||||||||||||
Cash flow from financing activities: | ||||||||||||||||
Proceeds from issuance of common stock and warrants, net | 6,507,050 | 50,523,527 | - | 6,507,050 | ||||||||||||
Proceeds from exercise of warrants into common stock | - | 4,513,860 | ||||||||||||||
Repayment of debt | - | (4,162,744 | ) | |||||||||||||
Payment penalties | - | (1,073,470 | ) | |||||||||||||
Proceeds from issuance of common stock pursuant to equity line | 236,009 | 588,590 | - | 236,009 | ||||||||||||
Repurchase of common stock upon vesting of restricted stock units | (4,028 | ) | (11,526 | ) | - | (4,028 | ) | |||||||||
Proceeds from note payable | 364,721 | - | ||||||||||||||
Repayment of note payable | (104,500 | ) | - | |||||||||||||
Net cash provided by financing activities | 6,739,031 | 50,378,237 | 260,221 | 6,739,031 | ||||||||||||
Net increase (decrease) in cash and cash equivalents | (2,808,877 | ) | 41,093,183 | (10,156,475 | ) | (2,808,877 | ) | |||||||||
Cash and cash equivalents at beginning of period | 28,202,615 | 678,332 | 22,071,523 | 28,202,615 | ||||||||||||
Cash and cash equivalents at end of period | $ | 25,393,738 | $ | 41,771,515 | $ | 11,915,048 | $ | 25,393,738 | ||||||||
Supplemental disclosure for cash flow information: | ||||||||||||||||
Cash payments for interest | $ | 9,608 | $ | 3,754 | ||||||||||||
Non-cash transactions: | ||||||||||||||||
Shares issued to CEO per agreement related to accrued interest | $ | - | $ | 143,573 | ||||||||||||
Shares issued pursuant to convertible debt | - | 514,011 | ||||||||||||||
Cash paid during period for: | ||||||||||||||||
Interest paid on debt | 3,754 | 695,989 | ||||||||||||||
Right-of-use assets obtained in exchange for lease liabilities | $ | 2,997,181 | $ | - | ||||||||||||
Series F Preferred Stock dividend | 794 | - | ||||||||||||||
Common stock issued to settle accrued board of directors’ and advisory board compensation | 189,896 | - | ||||||||||||||
Redemption of Series F Preferred Stock | (794 | ) | - | |||||||||||||
Common stock issued in connection with reverse stock split | 253 | - | ||||||||||||||
Common stock issued to management upon vesting of restricted stock units | 4,934 | - | ||||||||||||||
See Notesaccompanying notes to Condensed Consolidated Financial Statementsunaudited condensed consolidated financial statements.
PREDICTIVE ONCOLOGY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Continuance of OperationsGoing Concern
Predictive Oncology Inc.®, (the “Company” or “Predictive” or “we” (“Predictive Oncology”) filed withis a knowledge-driven company focused on applying artificial intelligence (“AI”) to support the Secretarydevelopment of State of Delaware a Certificate of Amendmentoptimal cancer therapies, which can ultimately lead to its Certificate of Incorporation to change the corporate name tomore effective treatments and improved patient outcomes. Through AI, Predictive Oncology Inc. on June 10, 2019, trading underuses its proprietary biobank of 150,000+ cancer tumor samples, categorized by patient type, against drug compounds to help the new ticker symbol “POAI,” effective June 13, 2019.drug discovery process and increase the probability of successful drug development. The company offers a suite of solutions for oncology drug development from early discovery to clinical trials.
The Company operates in fourthree primary business areas. First, we provideareas: first, along the drug response prediction services leveragingdiscovery continuum (i) the application of AI for optimized, high-confidence drug-response predictions within a unique collectionlarge experimental space that enables a more informed selection of more than 150,000 drug/tumor samples, categorized by tumor typecombinations to increase the probability of success during development and powered by artificial intelligence to assist biopharmaceutical companies in(ii) the creation and development of new oncology drugs primarily through our wholly owned subsidiary Helomics Holding Corporation® (“Helomics”). Second, we develop tumor-specific in vitro models for oncology drug discovery and research through our newly-acquired wholly-owned subsidiary, zPREDICTA, Inc.®. Third, we offer3D cell culture models; second, contract services and research focused on solubility improvements, stability studies, and protein production, primarily with our Soluble Biotech Inc.®, subsidiary. Fourth, we sell and produceand; third, production of the United States Food and Drug Administration (“FDA”)-cleared STREAMWAY System®STREAMWAY® System for automated fluid waste management, direct-to-drain medical fluid waste disposal and associated products through our incorporated division Skyline Medical Inc.® (“Skyline”).products.
The Company has determined that it will focus its resources on applying AI to support the development of optimal cancer therapies, partnering with biopharma clients to help prioritize drugs for development and identify biomarker-informed indications. Its platform provides a more informed decision tool to select optimal drug/tumor combinations to increase the probability of success during drug development. As a result of this focused approach, the Company has consolidated its brand under the Predictive Oncology name. Going forward, the Company will operate under the Predictive Oncology tradename with laboratory operations in Pittsburgh, Pennsylvania and Birmingham, Alabama. As of January 1, 2023, the Company has changed its reportable segments because of this focused approach.
The Company has three reportable segments that have been delineated by location and specialty: the Pittsburgh segment provides services that include the application of AI using its proprietary biobank of 150,000+ cancer tumor samples. Pittsburgh also utilizes 3D culture models in drug development. The Birmingham segment provides services and research using a self-contained, automated system that conducts high-throughput, self-interaction chromatography screens, using additives and excipients commonly included in protein formulations resulting in soluble and physically stable formulations of biologics focused on solubility improvements, stability studies, and protein production. The Eagan (Minnesota) segment consists of the production of the FDA-cleared STREAMWAY System for automated fluid waste management, direct-to-drain medical fluid disposal, and associated products. See Note 12 – Segments.
The Company has incurred significant and recurring losses from operations for the past several years and had an accumulated deficit of $164,286,536 as of September 30, 2023. The Company had cash and cash equivalents of $25,393,738$11,915,048 as of September 30, 2022 2023 and there was no outstanding debt. The Company believes that its existing capital resources will be sufficient to support its operating plan for the next twelve months and beyond. However, the Company may also seekneeds to raise significant additional capital to supportmeet its growth through additional debt, equity or other alternatives oroperating needs. The Company’s short-term obligations as of September 30, 2023 were $4,171,891, consisting primarily of aggregate accounts payable and accrued expenses of $2,979,064 and operating lease obligations of $555,541. As of September 30, 2023, the Company also had a combination thereof.short-term note payable of $260,220 that bears interest at an annual percentage rate of 9.25% and long-term operating lease obligations of $2,343,622 with a weighted average remaining lease term of 4.23 years. The Company currently expectsdoes not expect to usegenerate sufficient operating revenue to sustain its operations in the near term. Year-to-date, the Company incurred negative cash on handflows from operations of $10,107,030. These conditions raise substantial doubt about the Company’s ability to fund capital and equipment investments, research and development, potential acquisitions and its operations.continue as a going concern. The Company believes suchis evaluating alternatives to obtain the required additional funding to maintain future operations. These alternatives may include, but are not limited to, equity financing, issuing debt, entering into other financing arrangements, or monetizing operating businesses or assets. Despite these potential sources of funding, the Company may be unable to be sufficientaccess financing or obtain additional liquidity when needed or under acceptable terms, if at all. Therefore, there is substantial doubt about the Company’s ability to fund its requirements overcontinue as a going concern for one year after the date that time.
Coronavirus Outbreak
the financial statements are issued. The current COVID-19 worldwide pandemic has presented substantial public health challenges. In response to the crisis, emergency measuresaccompanying condensed consolidated financial statements have been imposed by governments worldwide, including mandatory social distancingprepared assuming the Company will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the shutdownnormal course of non-essential businesses. These measures have adversely impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. Our business, and operations have been and will likely continue to be materially and adversely affected. For example, our contract manufacturer fordo not include any adjustments that might result from the STREAMWAY System has been forced to change locations, thereby delaying our order fulfillment for parts. In addition, COVID-19 has impacted the Company’s capital and financial resources, including our overall liquidity position and outlook. For instance, our accounts receivable has slowed while our suppliers continue to ask for pre-delivery deposits. Ultimately, the extentoutcome of the impact of the COVID-19 pandemic on our future operational and financial performance will depend on, among other matters, the duration and intensity of the pandemic; the level of success of global vaccination efforts; governmental and private sector responses to the pandemic and the impact of such responses on us; and the impact of the pandemic on our employees, customers, suppliers, operations and sales, all of which are uncertain and cannot be predicted. These factors may remain prevalent for a significant period of time even after the pandemic subsides, including due to a continued or prolonged recession in the U.S. or other major economies. Even in areas where "stay-at-home" restrictions, masking and social distancing measures have been lifted and the number of COVID-19 cases have declined, some jurisdictions may re-impose these measures as and if variant strains emerge or cases rise. The impact of the COVID-19 pandemic, as with any adverse public health developments, could have a material adverse effect on our business, results of operations, liquidity or financial condition and heighten or exacerbate risks described in our Annual Report on Form 10-K filed with the SEC on March 31, 2022.
this uncertainty.
Reverse Stock Split
On April 19, 2023, the Company completed a one-for-twenty reverse stock split that was effective for trading purposes on April 24, 2023. All numbers of shares and per-share amounts in this report have been adjusted to reflect the reverse stock split (“Reverse Split”).
Interim Financial Statements
The Company has prepared the condensed consolidated financial statements and related unaudited financial information in the footnotes in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim condensed consolidated financial statements. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These interim condensed consolidated financial statements reflect all adjustments consisting of normal recurring accruals, which in the opinion of management, are necessary to present fairly the Company’s position, the results of its operations, and its cash flows for the interim periods. These interim condensed consolidated financial statements reflect all intercompany eliminations. These interim condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements and the notes thereto contained in the Annual Report on Form 10-K10-K filed with the SEC on March 31, 2022. 21, 2023. The nature of the Company’s business is such that the results of any interim period may not be indicative of the results to be expected for the entire year.
Accounting Policies and Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and during the reporting period. Actual results could materially differ from those estimates.
Reclassifications
Certain reclassifications have been made to the prior year’s condensed consolidated financial statements to conform to the current year presentation. The reclassifications had no effect on previously reported results of operations, cash flows or stockholders’ equity.
Cash and cash equivalentsCash Equivalents
FinancialThe Company considers all highly liquid instruments which potentially subject the Companywith maturities when purchased of three months or less to concentrations of credit risk consist principally of cash.be cash equivalents. The Company places its cash with high credit quality financial institutions and by policy, generally limits the amount of credit exposure to any one financial institution. The Company has a creditbelieves its risk of $6,514,611 for cashloss is limited to amounts held in a single institution that are in excess of amounts issuedthat which is insured by the Federal Deposit Insurance Corporation.
Receivables
Receivables are reported at the amount the Company expects to collect on balances outstanding. The Company provides for probable uncollectible amounts through charges to earnings and credits to the valuation allowance based on management’s assessment of the status of individual accounts.
Amounts recorded in accounts receivable on the condensed consolidated balance sheet include amounts billed and currently due from customers. The amounts due are stated at their net estimated realizable value. An allowance for doubtful accounts is maintained to provide for the estimated amount of receivables that will not be collected. The Company determines the allowance based on historical experience as well as external business factors expected to impact collectability such as economic factors. The Company reviews customers’ credit history before extending unsecured credit and establishes an allowance for uncollectible accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. Invoices are generally due 30 days after presentation. Accounts receivable over 30 days isare generally considered past due. The Company does not accrue interest on past due accounts receivables. Receivables are written off once all collection attempts have failed and are based on individual credit evaluation and specific circumstances of the customer. There was noThe allowance for doubtful accounts receivable balance was $0 as of both September 30, 2022 2023 and December 31, 2021.2022.
Fair Value Measurements
As outlined in Accounting Standards Codification (“ASC”) 820, Fair Value Measurement, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The accounting standards ASC 820 establishes a three-levelthree-level fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability as follows:
Level 1 – Observable inputs such as quoted prices in active markets;
Level 2 – Inputs other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3 – Unobservable inputs where there is little or no market data, which requires the reporting entity to develop its own assumptions.
The Company uses observable market data, when available, in making fair value measurements. Fair value measurements are classified according to the lowest level input that is significant to the valuation.
The fair value of the Company’s investment securities, which consist of cash and cash equivalents, was determined based on Level 1 inputs. The fair value of the Company’s derivative liabilities and debt were determined based on Level 3 inputs. The Company generally uses the Black Scholes method for determining the fair value of warrants classified as liabilities on a recurring basis. In addition, the Company uses the Monte Carlo method and other acceptable valuation methodologies when valuing the conversion feature and other embedded features classified as derivatives on a recurring basis. See Note 62 – Fair Value Measurements and Note 8 – Derivatives.
Inventories
Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-outfirst-in, first-out basis.
Fixed AssetsProperty and Equipment
Fixed assetsProperty and equipment are stated at cost less accumulated depreciation and amortization. Depreciation of fixed assetsproperty and equipment is computed using the straight-line method over the estimated useful lives of the respective assets. Estimated useful asset life by classification is as follows:
Years | Years | |||||||
Computers, software, and office equipment | 3 | - | 10 | 3 | - | 10 | ||
Leasehold improvements (1) | 2 | - | 5 | 2 | ||||
Manufacturing tooling | 3 | - | 7 | 3 | - | 7 | ||
Laboratory equipment | 4 | - | 10 | 4 | - | 10 | ||
Demo equipment | 3 | 3 | ||||||
| Leasehold improvements are amortized over the shorter of |
Upon retirement or sale of fixed assets,property and equipment, the cost and related accumulated depreciation or amortization are removed from the condensed consolidated balance sheet and the resulting gain or loss is reflected in operations. Maintenance and repairs are charged to operations expense as incurred.
Long-lived Assets
Finite-lived intangible assets consist of patents and trademarks, licensing fees, developed technology, and customer relationships, and are amortized over their estimated useful life. Accumulated amortization is included in intangibles, net in the accompanying condensed consolidated balance sheets.
The Company reviews finite-lived identifiable intangible assets for impairment in accordance with ASC 360, Property, Plant and Equipment, whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Events or changes in circumstances that indicate the carrying amount may not be recoverable include, but are not limited to, a significant change in the medical device marketplace and a significant adverse change in the business climate in which the Company operates.
Goodwill
In accordance with ASC 350, Intangibles – Goodwill and Other, goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of net assets acquired. Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination. Goodwill is not amortized but is tested on an annual basis for impairment at the reporting unit level as of December 31, or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable.
To determine whether goodwill is impaired, annually or more frequently if needed, the Company performs a multi-step impairment test. The Company first has the option to assess qualitative factors to determine if it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value. The Company may also elect to skip the qualitative testing and proceed directly to the quantitative testing. When performing quantitative testing, the Company first estimates the fair valuevalues of its reporting units using discounted cash flows. To determine fair values, the Company is required to make assumptions about a wide variety of internal and external factors. Significant assumptions used in the impairment analysis include financial projections of free cash flow (including significant assumptions about operations such asincluding the rate of future revenue growth, capital requirements, and income taxes), and long-term growth rates for determining terminal value and discount rates. Comparative market multiples are used to corroborate the results of the discounted cash flow test. These assumptions require significant judgment.judgement. Pursuant to ASU 2017-04,2017-04, Simplifying the Test for Goodwill Impairment, the single step is to determine the estimated fair value of the reporting unit and compare it to the carrying value of the reporting unit, including goodwill. To the extent the carrying amount of goodwill exceeds the implied goodwill, the difference is the amount of the goodwill impairment. The Company also completes a reconciliation between the implied equity valuation prepared and the Company’s market capitalization. The majority of the inputs used in the discounted cash flow model are unobservable and thus are considered to be Level 3 inputs. The inputs for the market capitalization calculation are considered Level 1 inputs. See Note 45 – Intangible Assets and Goodwill.
Leases
Leases –At inception of a contract, a determination is made whether an arrangement meets the definition of a lease. A contract contains a lease if there is an identified asset, and the Company has the right to control the asset. Operating leases are recorded as right-of-use (“ROU”) assets with corresponding current and noncurrent operating lease liabilities on our condensed consolidated balance sheets. Financing leases are included within fixed assets with corresponding current within other current liabilities and noncurrent within other long-term liabilities on our condensed consolidated balance sheets.
ROU assets represent our right to use an underlying asset for the duration of the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Recognition on the commencement date is based on the present value of lease payments over the lease term using an incremental borrowing rate. Leases with a term of 12 months or less at the commencement date are not recognized on the condensed consolidated balance sheet and are expensed as incurred.
The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component for all asset classes. Leases are accounted for at a portfolio level when similar in nature with identical or nearly identical provisions and with similar effective dates and lease terms.
Collaboration Arrangements
The Company enters into collaboration arrangements with oncology drug development partners, under which the Company utilizes its active learning technology, proprietary biobank, and know-how to provide predictive models of tumor responses to various drug compounds and treatments of partners. Consideration under these contracts may include an upfront payment, development and regulatory milestones and other contingent payments, expense reimbursements, royalties based on net sales of approved drugs, and commercial sales milestone payments.
The Company analyzes its collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements, which includes determining whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. To the extent that the arrangement falls within the scope of ASC 808, the Company assesses whether the payments between the Company and its collaboration partner fall within the scope of other accounting literature. If the Company concludes that payments from the collaboration partner to the Company would represent consideration from a customer, the Company accounts for those payments within the scope of ASC 606, Revenue from Contracts with Customers. However, if the Company concludes that its collaboration partner is not a customer for certain activities and associated payments, the Company presents such payments as a reduction of research and development expense or general and administrative expense, based on where the Company presents the underlying expense.
Revenue Recognition
The Company recognizes revenue when it satisfies a performance obligation by transferring control of the promised goods or services to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Sales taxes are imposed on the Company’s sales to nonexempt customers. The Company collects the taxes from the customers and remits the entire amounts to the governmental authorities. Sales taxes are excluded from revenue and expenses.
Revenue from Product Sales
The Company has medical device revenue consisting primarily of sales of the STREAMWAY System (i.e., hardware), as well as sales of the proprietary cleaning fluid and filters for use with the STREAMWAY System. This revenue stream is reported withinSystem (i.e., disposables), and other related services including maintenance plans. Currently, the Skyline segment. The Company sells its medical device products directly to hospitals and other medical facilities using employed sales representatives and independent contractors.representatives. Purchase orders, which are governed by sales agreements in all cases, state the final terms for unit price, quantity, shipping, and payment terms. The unit price is considered the observable stand-alone selling price for the arrangements. The Company sales agreement, and Terms and Conditions, is a dually executed contract providing explicit criteria supporting the sale of the STREAMWAY System.System and related products and services. The Company considers the combination of a purchase order and acceptance of its Terms and Conditions to be a customer’s contract in all cases.
Product sales for medical devices consist of a single performance obligation that the Company satisfies at a point in time. The Company recognizes product revenue when the following events have occurred: (1)(1) the Company has transferred physical possession of the products, (2)(2) the Company has a present right to payment, (3)(3) the customer has legal title to the products, and (4)(4) the customer bears significant risks and rewards of ownership of the products. Based on the shipping terms specified in the sales agreements and purchase orders, these criteria are generally met when the products are shipped from the Company’s facilities (“FOB origin,” which is the Company’s standard shipping term)terms). As a result, the Company determined that the customer could direct the use of and obtain substantially all of the benefits from, the products at the time the products are shipped. The Company may, at its discretion, negotiate different shipping terms with customers which may affect the timing of revenue recognition. The Company’s standard payment terms for its customers are generally 30 to 60 days after the Company transfers control of the product to its customer. The Company allows returns of defective disposable merchandise if the customer requests a return merchandise authorization from the Company.
Customers may also purchase a maintenance plan for the medical devices from the Company, which requires the Company to service the STREAMWAY System for a period of one year after the one-year anniversary date of the original STREAMWAY System invoice. year. The maintenance plan is considered a separate performance obligation from the product sale, is charged separately from the product sale, and is recognized over time (ratably over the one-yearone-year period) as maintenance services are provided. A time-elapsed output method is used to measure progress because the Company transfers control evenly by providing a stand-ready service. The Company has determined that this method provides a faithful depiction of the transfer of services to its customers.
All amounts billed to a customer in a sales transaction for medical devices related to shipping and handling, if any, represent revenues earned for the goods provided, and these amounts have been included in revenue. Costs related to such shipping and handling billing are classified as cost of goods sold. This revenue stream is reported under the SkylineEagan reportable segment.
Revenue from Clinical Testing
The Precision Oncology Insights are clinicalClinic diagnostic testing is comprised of the Company’sour Tumor Drug Response Testing (formerly ChemoFx)(“ChemoFx”) and Genomic Profiling (formerly BioSpeciFx)(“BioSpeciFx”) tests. The Tumor Drug Response Testing test determines how a patient’s tumor specimen reacts to a panel of various chemotherapy drugs, while the Genomic Profiling test evaluates the expression and/or status of a particular gene related to a patient’s tumor specimen. Revenues are recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The estimated uncollectible amounts are generally considered implicit price concessions that are a reduction in revenue. Helomics’ paymentPittsburgh’s payments terms vary by the agreements reached with insurance carriers and Medicare. The Company’s performance obligations are satisfied at one point in time when test reports are delivered.
For service revenues, the Company estimates the transaction price which is the amount of consideration it expects to be entitled to receive in exchange for providing services based on its historical collection experience. The Company usesexperience using a portfolio approach as a practical expedient to account for patient contracts as collective groups rather than individually. The Company monitors its estimates of transaction price to depict conditions that exist at each reporting date. If the Company subsequently determines that it will collect lessmore consideration than it originally estimated for a contract with a patient, it will account for the change as a decreasean increase to the estimate of the transaction price, provided that such downward adjustment does not result in a significant reversal of cumulative revenue recognized.
The Company recognizes revenue from these patients when contracts, as defined in ASC 606,Revenue from Contracts with Customers, are established at the amount of consideration to which it expects to be entitled or when the Company receives substantially all the consideration subsequent to the performance obligations being satisfied. The Company’s standard payment termsterm for hospital and patient direct bill are is 30 days after the invoice date. This revenue stream is reported under the HelomicsPittsburgh segment.
Contract Research Organization (“CRO Revenue”) and AI-Driven Business
Contract revenues are generally derived from studies conducted with biopharmaceutical and pharmaceutical companies. The specific methodology for revenue recognition is determined on a case-by-case basis according to the facts and circumstances applicable to a given contract. The Company typically uses an input method that recognizes revenue based on the Company’s efforts to satisfy the performance obligation relative to the total expected inputs to the satisfaction of that performance obligation. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation based on the basis of the standalone-selling price of each distinct good or service in the contract. Advance payments received in excess of revenues recognized are classified as contract liabilitiesdeferred revenue until such time as the revenue recognition criteria have been met. Payment terms are net 30 from the invoice date, which is sent to the customer as the Company satisfies the performance obligation relative to the total expected inputs to the satisfaction of that performance obligation. This revenue stream is reported under the HelomicsBirmingham and zPREDICTAPittsburgh segments.
Royalty Revenue
The Company has a collaboration arrangement that includes sales-based royalties, under which our collaboration partners are obligated to pay a royalty that is based on the net sales of their approved drugs. The Company recognizes royalty revenue when the underlying sales occur based on its best estimate of sales of the drugs. To date, the Company has not recognized revenues related to royalties earned under collaboration arrangements.
Variable Consideration
The Company records revenue from distributors and direct end customers in an amount that reflects the transaction price it expects to be entitled to after transferring control of those goods or services. The Company’s current contracts do not contain any features that create variability in the amount or timing of revenue to be earned.
Warranty
The Company generally provides one-yearone-year warranties against defects in materials and workmanship on product sales and will either repair the products or provide replacements at no charge to customers. As they are considered assurance-type warranties, the Company does not account for them as separate performance obligations. Warranty reserve requirements are based on a specific assessment of the products sold with warranties where a customer asserts a claim for warranty or a product defect.
Contract Balances
The Company records a receivable when it has an unconditional right to receive consideration after the performance obligations are satisfied. Accounts receivable totaled $324,708$544,756 and $354,196$331,196 as of September 30, 2023 and December 31, 2022, and respectively. As of December 31, 2021, respectively.accounts receivable totaled $354,196.
The Company’s contract liabilities relaterelated primarily to CRO3D services agreements and maintenance plans were $374,957 and $602,073 as of September 30, 2023 and December 31, 2022, and respectively. The Company recognized revenue of $227,116 during the nine-months ended September 30, 2023 that was included in contract liabilities as of December 31, 2022. As of December 31, 2021, were $495,365 and $186,951, respectively.contract liabilities totaled $186,951.
Practical Expedients
The Company has elected the practical expedient not to determine whether contracts with customers contain significant financing components as contracts are generally for less than one year, as well as the practical expedient to recognize shipping and handling costs at point of sale.
Valuation and accountingAccounting for stock optionsStock Options and warrantsWarrants
The Company determines the grant date fair value of options and warrants using a Black-Scholes option valuation model based upon assumptions regarding risk-free interest rate, expected dividend rate, volatility, and estimated term.
The fair value of each option and warrant grant is estimated on the grant date using the Black-Scholes option valuation model with the following assumptions:
For the nine months ended September 30, | For the nine months ended September 30, | |||||
2022 | 2021 | 2023 | 2022 | |||
Stock Options | Stock Options | |||||
Expected dividend yield | 0.0% | 0.0% | 0.0% | 0.0% | ||
Expected stock price volatility | 86.5% - 92.2% | 84.8% - 89.6% | 90.8% – 98.2% | 86.5% – 92.2% | ||
Risk-free interest rate | 1.83% - 3.43% | 0.93% - 1.45% | 3.38% – 3.95% | 1.83% – 3.43% | ||
Expected life (years) | 10 | 10 | 10 | 10 | ||
Warrants | Warrants | |||||
Expected dividend yield | 0.0% | 0.0% | 0.0% | 0.0% | ||
Expected stock price volatility | 92.2% | 84.8% - 89.6% | 0% | 92.2% | ||
Risk-free interest rate | 2.96% - 2.97% | 0.42% - 1.04% | 0% | 2.96% – 2.97% | ||
Expected life (years) | 5 - 5.5 | 5 - 5.5 | 0 | 5 – 5.5 | ||
On January 1, 2023, the Company adopted a sequencing policy under ASC 815-40-35 (“ASC 815”) that will apply if reclassification of contracts from equity to liabilities is necessary. If the Company is unable to demonstrate it has sufficient authorized shares, shares will be allocated based on the earliest issuance date of potentially dilutive financial instruments, with the earliest financial instruments receiving the first allocation of shares. Pursuant to ASC 815, issuance of stock-based awards to the Company’s employees are not subject to the sequencing policy.
Research and Development
Research and development costs are charged to operations expense as incurred. Research and development costs were $116,763$20,671 and $234,357$15,150 for the ninethree months ended September 30, 2023 and 2022, respectively. Research and 2021,development costs were $88,843 and $116,763 for the nine months ended September 30, 2023 and 2022, respectively.
Other Expense
Other expense for the three and nine months ended September 30, 2021 consisted primarily of interest expense, payment premium, amortization of original issue discounts, and loss on debt extinguishment associated with the Company’s notes payable.
Offering Costs
Costs incurred which are direct and incremental to an offering of the Company’s securities are deferred and charged against the proceeds of the offering unless such costs are deemed to be insignificant in which case they are expensed as incurred.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”). Under ASC 740, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and net operating loss and credit carryforwards using enacted tax rates in effect for the year in which the differences are expected to impact taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized.
There is no income tax provision in the accompanying condensed consolidated statements of net loss due to the cumulative operating losses that indicate a 100% valuation allowance for the deferred tax assets is appropriate.
The Company reviews income tax positions expected to be taken in income tax returns to determine if there are any income tax uncertainties. The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax positions will be sustained on examination by taxing authorities, based on technical merits of the positions. The Company has identified no income tax uncertainties.
Under Internal Revenue Code Section 382, certain stock transactions which significantly change ownership could limit the amount of net operating carryforwards that may be utilized on an annual basis to offset taxable income in future periods. The Company has not yet performed an analysis of the annual net operating loss carryforwards and limitations that are available to be used against taxable income. Consequently, the limitation, if any, could result in the expiration of the Company’s loss carryforwards before they can be utilized. The Company has not analyzed net operating loss carryforwards under Section 382 to date. As a result of the acquisition of Helomics acquisition,Corporation (“Helomics”) in 2019, there may be significant limitations to the net operating loss. In addition, the current NOLnet operating loss carryforwards might be further limited by future issuances of our common stock.
Tax years subsequent to 2018after 2002 remain open to examination by federal and state tax authorities.authorities due to unexpired net operating loss carryforwards.
Credit Risk
Financial instruments whichthat potentially subject the Company to concentrations of credit risk consist principally of cash. The Company places its cash with high credit quality financial institutions and, by policy, generally limits the amount of credit exposure to any one financial institution. TheAs of September 30, 2023, the Company has ahad $34,853 of credit risk of $6,514,611 for cash amounts held in a single institution that are in excess of amounts issuedinsured by the Federal Deposit Insurance Corporation.
Risks and Uncertainties
The Company is subject to risks common to companies in the medical device and biopharmaceutical industries, including, but not limited to, development by the Company or its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, and compliance with regulations of the Food and Drug Administration, Clinical Laboratory Improvement Amendments, and other governmental agencies.
The Company is also subject to general economic and geopolitical uncertainties caused by inflation, rising interest rates, supply chain disruptions, tight labor markets, wage inflation, pricing volatility for certain goods and services, banking and financial sector disruptions, instability and volatility in the global markets, disruptions from COVID-19, and geopolitical conflict. The impacts of economic and other global events could have a material adverse effect on our business, results of operations, liquidity or financial condition and heighten or exacerbate risks described in our Annual Report on Form 10-K filed with the SEC on March 21, 2023.
Recent Accounting Pronouncements
The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (the “FASB”). Recently issued ASUs not listed below either were either assessed and determined to be not applicable or are currently expected to have no impact on the condensed consolidated financial statements of the Company.
Recently Adopted Accounting Standards
In June 2016, the FASB issued ASU 2016-13,2016-13, “Financial Instruments – Credit Losses.” This ASU added a new impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. The CECL model applies to most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments. The CECL model does not have a minimum threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low risk of loss. The Company adopted the provisions of ASU 2016-13 on January 1, 2023; the adoption did not have a material impact on our consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options and Derivatives and Hedging – Contracts in Entity’s Own Equity” (“ASU 2020-06”). ASU 2020-06 eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. The new guidance also modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. As a smaller reporting company pursuant to Rule 12b-2 of the Securities Exchange Act of 1934, as amended, these changes becomeASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those annual periods. Early adoption is permitted, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of its annual fiscal year and are allowed to adopt the guidance through either a modified retrospective method of transition or a fully retrospective method of transition. The Company early adopted ASU 2020-06 on January 1, 2023. Management is currently evaluating the potential2023 and its adoption did not have a material impact of these changes on the condensed consolidatedCompany’s financial statementsstatements.
In September 2022, the FASB issued ASU 2022-04, “Liabilities – Supplier Finance Programs” (“ASU 2022-04”). ASU 2022-04 was issued to enhance the transparency of supplier finance programs used by an entity in connection with the Company.purchase of goods and services. The standard requires entities that use supplier finance programs to disclose the key terms, including a description of payment terms, the confirmed amount outstanding under the program at the end of each reporting period, a description of where those obligations are presented on the balance sheet, and an annual rollforward, including the amount of obligations confirmed and the amount paid during the period. The guidance does not affect the recognition, measurement, or financial statement presentation of obligations covered by supplier finance programs. ASU 2022-04 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the required rollforward information, which is effective for fiscal years beginning after December 15, 2023. The Company adopted ASU 2022-04 on January 1, 2023 and its adoption did not have a material impact on the Company’s financial statements.
NOTE 2– FAIR VALUE MEASUREMENTS
The following table summarizes the Company’s fair value hierarchy for its liabilities measured at fair value on a recurring basis:
September 30, 2023 | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
Liabilities: | ||||||||||||||||
Derivatives | $ | 2,109 | $ | - | $ | - | $ | 2,109 | ||||||||
December 31, 2022 | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
Liabilities: | ||||||||||||||||
Derivatives | $ | 13,833 | $ | - | $ | - | $ | 13,833 | ||||||||
NOTE 3 – INVENTORIES
Inventory balances are as follows:
As of September 30, 2022 | As of 2021 | As of 2023 | As of 2022 | |||||||||||||
Finished goods | $ | 333,334 | $ | 193,287 | $ | 242,949 | $ | 290,616 | ||||||||
Raw materials | 160,388 | 183,410 | 190,346 | 133,183 | ||||||||||||
Work-In-Process | - | 10,987 | 6,694 | 6,694 | ||||||||||||
Total | $ | 493,722 | $ | 387,684 | $ | 439,989 | $ | 430,493 | ||||||||
NOTE 4 – PROPERTY AND EQUIPMENT
The Company’s property and equipment consist of the following:
As of 2023 | As of December 31, 2022 | |||||||
Computers, software, and office equipment | $ | 496,382 | $ | 463,292 | ||||
Leasehold improvements | 506,162 | 535,527 | ||||||
Laboratory equipment | 3,661,891 | 3,559,362 | ||||||
Manufacturing tooling | 133,285 | 121,120 | ||||||
Demo equipment | 31,554 | 31,554 | ||||||
Total | 4,829,274 | 4,710,855 | ||||||
Less: Accumulated depreciation | (3,436,593 | ) | (2,877,600 | ) | ||||
Total Property and Equipment, Net | $ | 1,392,681 | $ | 1,833,255 | ||||
Due to changes in its future projected cash flows, the Company prepared an undiscounted cash flow for its Birmingham asset group as of June 30, 2023 as required under ASC 360 and determined the carrying amount of the asset group exceeded its estimated undiscounted future cash flows. The Company determined the fair value of the Birmingham asset group using replacement cost and market approaches based on the in-exchange value. The Company recognized an impairment loss of $162,905 of its property and equipment in the Birmingham operating segment during the second quarter of 2023.
NOTE 3– FIXED ASSETS
The Company’s fixed assets consist of the following:
As of 2022 | As of December 31, 2021 | |||||||
Computers, software, and office equipment | $ | 539,036 | $ | 517,488 | ||||
Leasehold improvements | 537,696 | 428,596 | ||||||
Laboratory equipment | 3,685,560 | 3,456,091 | ||||||
Manufacturing tooling | 121,120 | 121,120 | ||||||
Demo equipment | 31,555 | 56,614 | ||||||
Total | 4,914,967 | 4,579,909 | ||||||
Less: Accumulated depreciation and amortization | (2,712,865) | (2,068,338 | ) | |||||
Total Fixed Assets, Net | $ | 2,202,102 | $ | 2,511,571 | ||||
Depreciation expense, recorded within general and administrative expenses and operations expenses, was $227,135$156,124 and $237,742$227,135 for the three months ended September 30, 2022 2023 and 2021,2022, respectively, and $560,413 and $669,686 and $720,736 forduring the nine months ended September 30, 2022 2023 and 2021,2022, respectively.
NOTE 45 – INTANGIBLE ASSETS AND GOODWILL
Finite-lived Intangible Assets
The components of intangible assets were as follows:
As of September 30, 2022 | As of December 31, 2021 | As of September 30, 2023 | As of December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Gross Carrying Costs | Accumulated Amortization | Net Carrying Amount | Gross Carrying Costs | Accumulated Amortization | Impairment | Net Carrying Amount | Gross Carrying Costs | Accumulated Amortization | Net Carrying Amount | Gross Carrying Costs | Accumulated Amortization | Impairment | Net Carrying Amount | |||||||||||||||||||||||||||||||||||||||||||
Patents & Trademarks | $ | 503,495 | $ | (248,768 | ) | $ | 254,727 | $ | 453,314 | $ | (230,572 | ) | $ | - | $ | 222,742 | $ | 535,096 | $ | (275,776 | ) | $ | 259,320 | $ | 509,141 | $ | (255,276 | ) | $ | - | $ | 253,865 | ||||||||||||||||||||||||
Developed Technology | 3,500,000 | (298,958 | ) | 3,201,042 | 6,382,000 | (432,733 | ) | (2,485,725 | ) | 3,463,542 | - | - | - | 3,500,000 | (386,459 | ) | (3,113,541 | ) | - | |||||||||||||||||||||||||||||||||||||
Customer Relationships | 200,000 | (17,083 | ) | 182,917 | 645,000 | (410,000 | ) | (37,083 | ) | 197,917 | - | - | - | 200,000 | (22,083 | ) | (177,917 | ) | - | |||||||||||||||||||||||||||||||||||||
Tradename | 80,000 | (17,083 | ) | 62,917 | 478,000 | (29,343 | ) | (370,740 | ) | 77,917 | - | - | - | 80,000 | (22,083 | ) | (57,917 | ) | - | |||||||||||||||||||||||||||||||||||||
Total | $ | 4,283,495 | $ | (581,892 | ) | $ | 3,701,603 | $ | 7,958,314 | $ | (1,102,648 | ) | $ | (2,893,548 | ) | $ | 3,962,118 | $ | 535,096 | $ | (275,776 | ) | $ | 259,320 | $ | 4,289,141 | $ | (685,901 | ) | $ | (3,349,375 | ) | $ | 253,865 | ||||||||||||||||||||||
The impairment loss recognizedAmortization expense, recorded within general and administrative expenses, was $6,863 and $103,805 during the yearthree months ended December 31, 2021 adjusted the carrying amount of a long-lived asset. As a result, the gross carrying cost shown as of September 30, 2023 and 2022, reflects the new cost basis per ASC 360-10-35-20. Amortization expense was $103,805respectively, and $83,619$20,563 and $310,695 during the threenine months ended September 30, 2023 and 2022, and 2021, respectively and $310,695 and $249,752 during the nine months ended September 30, 2022 and 2021, respectivelyrespectively.
The following table outlines the estimated future amortization expense related to intangible assets held as of September 30, 2020:2023:
Year ending December 31, | Expense | Expense | ||||||
2022 | $ | 207,442 | ||||||
2023 | 415,194 | |||||||
Remainder of 2023 | $ | 6,863 | ||||||
2024 | 415,194 | 27,451 | ||||||
2025 | 413,111 | 27,451 | ||||||
2026 | 395,194 | 27,451 | ||||||
2027 | 27,451 | |||||||
Thereafter | 1,855,468 | 142,653 | ||||||
Total | $ | 3,701,603 | $ | 259,320 | ||||
The Company concluded there was recognized no impairment of its finite-lived intangible assets as of during the three and nine months ended September 30, 2023 and 2022.The Company prepared
Goodwill
As of September 30, 2022, the undiscounted cash flows per ASC 360. The Company concluded that the undiscounted cash flowsgoodwill acquired in connection with the acquisition of zPREDICTA Inc., the long-lived assets exceededCompany’s former wholly owned subsidiary, was fully impaired and recognized an impairment loss on goodwill of $7,231,093 during the carrying values.nine months then ended. As of September 30, 2023, the cumulative impairment of goodwill recorded was $7,231,093.
The goodwill acquired by the Company in connection with the acquisition of Helomics was zero as of both September 30, 2023 and December 31, 2022. The cumulative impairment of goodwill recorded was $23,790,290.
Goodwill
Goodwill for our zPREDICTA operating segment was zero as of September 30, 2022 and $6,857,790 as of December 31, 2021. The change in value of goodwill from December 31, 2021 and September 30, 2022 was the result of identification of an immaterial error in the fair value of the acquired contract liabilities. The Company identified this error during the second quarter of 2022 and recorded an adjustment to increase the acquired goodwill and increase the contract liability by $373,303.
During the three months ended June 30, 2022, the Company identified an out-of-period error related to the application of ASC 606 with respect to the recognition of revenue associated with zPREDICTA customer contracts. As a result, the Company has recorded an adjustment to the purchase price allocation of zPREDICTA and the associated acquisition date fair values of assets acquired, and liabilities assumed. The Company has determined that $373,303 of additional contract liabilities should have been recorded which results in an increase to the fair value of goodwill acquired by the same amount to a value of $7,231,093. The Company corrected the error in the financial statements during the three months ending June 30, 2022 by increasing each contract liability and goodwill by $373,303.
The Company evaluated the materiality of these errors both qualitatively and quantitatively in accordance with Staff Accounting Bulletin (“SAB”) No.99, Materiality and SAB No.108, Considering the Effects of Prior Year Misstatements in Current Year Financial Statements, and determined the effect of these corrections was not material to the consolidated financial statements as of and for the year ended December 31, 2021 nor for the quarterly period ended June 30, 2022.
The Company had previously disclosed the acquisition date fair values of assets acquired and liabilities assumed, and the consideration transferred, the following table reflects the adjustment discussed above:
Cash consideration | $ | 10,015,941 | ||
Assets acquired: | ||||
Cash | 425,727 | |||
Accounts receivable | 76,549 | |||
Prepaid expenses | 25,733 | |||
Intangible assets | 3,780,000 | |||
Liabilities assumed: | ||||
Accrued expenses | (408,825 | ) | ||
Deferred tax liability | (661,658 | ) | ||
Contract liabilities | (452,678 | ) | ||
Goodwill | $ | 7,231,093 |
Pro Forma
The following pro forma information presents the combined results of operations of the Company and zPREDICTA as if the acquisition of zPREDICTA had been completed on January 1, 2020, with adjustments to give effect to pro forma events that are directly attributable to the acquisition and reflects the correction of application of ASC 606 as discussed above.
Twelve months ended December 31, 2021 | Twelve months ended December 31, 2020 | |||||||
Unaudited | Unaudited | |||||||
Revenue | $ | 2,056,484 | $ | 1,815,560 | ||||
Net loss attributable to common shareholders | $ | (19,251,734 | ) | $ | (26,946,564 | ) | ||
Helomics reporting unit
The goodwill for our Helomics operating segment was zero as of both September 30, 2022 and December 31, 2021, and the cumulative impairment losses are $23,790,290.
zPREDICTA reporting unit
As of September 30, 2022, the cumulative impairment recorded was $7,231,093.
Goodwill balance at December 31, 2021 | $ | 6,857,790 | ||
Adjustment to fair value | 373,303 | |||
Impairment | (7,231,093 | ) | ||
Goodwill balance at June 30, 2022 | $ | - | ||
Impairment | - | |||
Goodwill balance at September 30, 2022 | $ | - |
When evaluating the fair value of the zPREDICTA reporting unit, the Company used a discounted cash flow model and market comparisons. Key assumptions used to determine the estimated fair value included: (a) expected cash flow for the 10-year period following the testing date (including net revenues, costs of revenues, and operating expenses as well as estimated working capital needs and capital expenditures) and (b) an estimated terminal value using a terminal year growth rate of 4.0% determined based on the growth prospects of the reporting unit. The Company further used a probability weighting of various forecasts to address forecast risk The Company used an estimated discount rate of 65% based on management’s best estimate and considering the Company’s current market capitalization.
The majority of the inputs used in the discounted cash flow model are unobservable and thus are considered to be Level 3 inputs. The inputs for the market capitalization calculation are considered Level 1 inputs. Goodwill is not expected to be deductible for tax purposes.
NOTE 56 – STOCKHOLDERS’ EQUITY, STOCK OPTIONS AND WARRANTS
May 2022 OfferingsSeries F Preferred Stock Dividend and Reverse Stock Split
On MayMarch 16, 2022, 2023, the Board of Directors of the Company issued and sold to several institutional and accredited investors in a registered direct offering (the “First Offering”) an aggregateauthorized the issuance of 3,837,28080,000 shares of itsSeries F Preferred Stock, par value $0.01 per share.
On March 16, 2023, the Board of Directors of the Company declared a dividend of one one-thousandth of a share of Series F Preferred Stock, par value $0.01 per share, for each outstanding share of the Company’s common stock at a purchase priceheld on record as of $0.60 per share. PursuantMarch 27, 2023. 79,404 shares of Series F Preferred Stock were issued pursuant to the securities purchase agreement, in a concurrent private placement,stock dividend. Each share of Series F Preferred Stock entitled the Company also agreedholder thereof to issue1,000,000 votes per share to these purchasers unregistered warrants to purchase up to an aggregate of 3,837,280vote together with the outstanding shares of common stock (the “Warrants”). The Warrantsof the Company as a single class to adopt an amendment to the Company’s Certificate of Incorporation to affect a reverse stock split.
On April 19, 2023, the Company completed a one-for-twenty reverse stock split that was effective for trading purposes on April 24, 2023. No fractional shares were issued as a result of the reverse stock split. Any fractional shares that would otherwise have an exercise price equal to $0.70 per share, will become exercisable six monthsresulted from the datereverse stock split were rounded up to the next whole number. The number of issuance, and will expire five and one-half years from the date of issuance.
In addition, in a concurrent registered direct offering (the “Second Offering”), on May 16, 2022, the Company issued and sold to several institutional and accredited investors an aggregate of 8,162,720authorized shares of its common stock under the Company’s certificate of incorporation, as amended, remained unchanged at a purchase price200,000,000 shares. All numbers of $0.60 per share. The Company also entered into a warrant amendment agreement (the “Warrant Amendment”) with eachshares and per-share amounts in this report have been adjusted to reflect the reverse split. Proportionate reductions were made to the number of shares of common stock reserved for future issuance under our 2012 Equity Incentive Plan and the purchasers in the Second Offering. Under the Warrant Amendment, the Company agreed to amend certain existing warrants to purchase up to 16,325,433number of shares of common stock that may be issued upon exercise or vesting of outstanding equity incentive awards and warrants, and proportionate increases were previously issued in 2020 and 2021made to those purchasers, with exercise prices ranging from $1.00 to $2.00 per share (the “Existing Warrants”), were amended to: (i) lower the exercise price of the Existing Warrantsor share-based performance criteria, if any, applicable to $0.70 per share, (ii) provide that the Existing Warrants, as amended, will not be exercisable until six months following the closing date of the Second Offering,such awards and (iii) extend the original expiration date of the Existing Warrants by five and one-half years following the close of the Second Offering.warrants.
In each case, the Company paid to the placement agent an aggregate fee equal to 7.5%Redemption of the aggregate gross proceeds received by the Company in the offering and a management fee equal to 1% of the aggregate gross proceeds received by the Company in the offering and provided the placement agent expense allowance of $65,000 for non-accountable and other out-of-pocket expenses. In addition, the Company granted to the placement agent or its assigns warrants to purchase 7.5% of the shares sold to investors in the offering at an exercise price equal to 125% of the price of the shares in the transaction, or $0.75 per share, with a term of five years (the “Agent Warrants”). The Agent Warrants become exercisable six months after issuance.
Equity LineSeries F Preferred Stock
On October 24, 2019, April 17, 2023, the Company entered into an equity purchase agreement with an investor, providing for an equity financing facility. Upon the terms and subjectconvened a special meeting of stockholders, which was adjourned due to the conditions inlack of a quorum and reconvened on April 19, 2023 (the “Special Meeting”), at which the purchase agreement,Company’s stockholders approved a proposal to amend the investor is committedCompany’s certificate of incorporation to purchase shares having an aggregate value of up to $15,000,000effect a reverse stock split of the Company’s common stock forat a periodratio in the range of up1-for-2 to three years. The Company issued1-for-25, with such ratio to be determined by the Company’s Board of Directors (the “Reverse Split Proposal”). All shares of Series F Preferred Stock that were not present in person or by proxy at the Special Meeting as of immediately prior to the investor 104,651 commitment shares at a fair market value of $450,000 for entering into the agreement. From time to time during the three-year commitment period, provided that the closing conditions are satisfied, the Company may provide the investor with put notices to purchase a specified number of shares subject to certain limitations and conditions and at specified prices, which generally represent discounts to the market priceopening of the common stock. As of September 30, 2022, there was $8,877,820 remaining in available balance under the equity line. In connection with the May 2022 offerings, the Company agreed not to access the remaining balance for a period of one year after the closing date, or May 18, 2022. Additional issuances under this line will be dilutive. During the nine months ended September 30,2022, the Company issued 315,000polls (the “Initial Redemption Time”) were automatically redeemed (the “Initial Redemption”). All outstanding shares of its common stock valued at $236,009Series F Preferred Stock that were not redeemed pursuant to the equity line.Initial Redemption were redeemed automatically upon the approval by the Company’s stockholders of the Reverse Split Proposal (the “Subsequent Redemption” and, together with the Initial Redemption, the “Redemption”). Both the Initial Redemption and the Subsequent Redemption occurred on April 19, 2023. As a result, no shares of Series F Preferred Stock remain outstanding.
Equity Incentive Plan
The Company has an equity incentive plan, which allows the Company to issueissuance of incentive and non-qualified stock options to employees, directors, and consultants of the Company, where permitted under the plan. The exercise price for each stock option is determined by the Board of Directors. Vesting requirements are determined by the Board of Directors when granted and currently range from immediate to three years. Options under this plan have terms ranging from three to ten years.
The following summarizes transactions for stock options and warrants for the periods indicated:
Stock Options | Warrants | Stock Options | Warrants | |||||||||||||||||||||||||||||
Number of | Average | Number of | Average | Number of | Average | Number of | Average | |||||||||||||||||||||||||
Outstanding at December 31, 2020 | 1,013,547 | $ | 5.41 | 7,353,376 | $ | 1.99 | ||||||||||||||||||||||||||
Outstanding at December 31, 2021 | 53,144 | $ | 96.60 | 1,584,995 | $ | 33.20 | ||||||||||||||||||||||||||
Issued | 147,230 | 1.06 | 29,640,801 | 1.44 | 1,599 | 8.40 | 1,053,136 | 14.00 | ||||||||||||||||||||||||
Forfeited | (92,593 | ) | 8.64 | - | - | (2,013 | ) | 17.60 | - | - | ||||||||||||||||||||||
Expired | - | - | (25,233 | ) | 10.00 | (3,677 | ) | 208.40 | (5,422 | ) | 329.60 | |||||||||||||||||||||
Exercised | (5,313 | ) | 0.74 | (5,269,059 | ) | 0.86 | ||||||||||||||||||||||||||
Outstanding at December 31, 2021 | 1,062,871 | $ | 4.83 | 31,699,885 | $ | 1.66 | ||||||||||||||||||||||||||
Cancelled | - | - | (816,272 | ) | 30.20 | |||||||||||||||||||||||||||
Outstanding at December 31, 2022 | 49,053 | $ | 91.69 | 1,816,437 | $ | 22.60 | ||||||||||||||||||||||||||
Issued | 16,410 | 0.49 | 21,062,714 | 0.70 | 1,075 | 5.45 | - | - | ||||||||||||||||||||||||
Forfeited | (49 | ) | 6.18 | - | - | |||||||||||||||||||||||||||
Expired | (45,760 | ) | 16.06 | (47,744 | ) | 23.82 | (1,854 | ) | 121.24 | (9,417 | ) | 217.64 | ||||||||||||||||||||
Forfeited | (11,897 | ) | 1.09 | - | - | |||||||||||||||||||||||||||
Modified | - | - | (16,325,433 | ) | 1.51 | |||||||||||||||||||||||||||
Outstanding at September 30, 2022 | 1,021,624 | $ | 4.45 | 36,389,422 | $ | 0.74 | ||||||||||||||||||||||||||
Outstanding at September 30, 2023 | 48,225 | $ | 83.58 | 1,807,020 | $ | 21.58 | ||||||||||||||||||||||||||
Stock-based compensation expense, net of forfeitures, recognized for the three months ended September 30, 2023 and September 30, 2022 was $(14,300) and $26,993, respectively. Stock-based compensation expense recognized for the threenine months ended September 30, 2023 and September 30, 2022 was $859 and 2021 was $26,993 and $29,004,$102,894, respectively. Stock-based compensation expense recognized for nine months ended September 30, 2022 and 2021 was $102,894 and $627,329, respectively The Company has $17,033$2,833 of unrecognized compensation expense related to non-vestedunvested stock options that is expected to be recognized over the next 20 months19 months. At September 30, 2023, there were no restricted stock units (“RSUs”) outstanding under the plan and $42,070 ofthe Company has no unrecognized compensation expense related to non-vested restricted stock units that is expected to be recognized over the next 15 months. At September 30, 2022, there were 483,333 RSUs outstanding under the plan.unvested RSUs.
NOTE 67 – COLLABORATIVE AGREEMENT
Collaborative Agreement with Cancer Research Horizons
On March 16, 2023, the Company entered into a Collaboration Agreement (the “CRH Agreement”) with Cancer Research Horizons (“CRH”), pursuant to which the Company will use its PEDAL technology to evaluate CRH pre-clinical drug inhibitors of Glutaminase to determine which cancer types and patient populations are most likely to respond to treatment with these compounds (the “Project”). Under the CRH Agreement, both parties will retain rights to their respective background intellectual property. Rights to reports, findings, supporting data, and materials (“Project Intellectual Property”) that are generated by the Company pursuant to its performance under the CRH Agreement vest exclusively in CRH. Each party funds its own participation in the Project. Costs incurred to participate in the CRH Agreement are recorded in Operations Expense in the Company’s Statement of Net Loss.
Pursuant to the CRH Agreement, the Company shall receive a percentage of net revenue, as defined in the agreement, received by CRH for the commercialization of the CRH Candidates and any CRH Derivatives. The percentage of net revenue varies depending on the stage of development. As of September 30, 2023, the Company has not recognized any revenue under the CRH Agreement.
NOTE 8 – DERIVATIVES
Certain warrants issued to placement agents were determined to be a derivative liability due to specificcertain features of the warrants which could, in particularcertain circumstances, result in the holder receiving the Black Scholes value of the outstanding warrants in the same type of consideration as the common stockholders. As a result, in those circumstances, the amount of consideration would differ from that provided to holders of common stock, therefore, the warrants were classified as a liability.
The fair value of the placement agent warrants issued in connection with the March 2020 private placement was determined to be $41,336$293 and $3,355 as of September 30, 2023 and December 31, 2021. 2022, respectively. The Company recorded a gaingains on the change in fair value of the placement agent warrants of $743 and $3,308 during the three months ended September 30, 2023 and September 30, 2022, respectively, and $3,062 and $35,474 during the nine months ended September 30, 2023 and September 30, 2022, respectively. The placement agent warrants expire in March 2025.
The fair value of the placement agent warrants issued in connection with the May 2020 offering of securities was determined to be $576 and a loss$4,479 as of September 30, 2023 and December 31, 2022, respectively. The Company recorded gains on the change in fair value of the placement agent warrants of $41,326$1,133 and $3,370 during the ninethree months ended September 30, 2021. As of 2023 and September 30, 2022, respectively, and $3,903 and $35,421 during the fair value of thenine months ended September 30, 2023 and September 30, 2022, respectively. The placement agent warrants was $5,862.expire in May 2025.
The fair value of theplacement agent warrants issued in connection with the MayJune 2020 registered offering were determined to be $7,225warrant exercise and $42,646issuance had a fair value of $1,240 and $5,999 as of September 30, 2022 2023 and December 31, 2021, 2022, respectively. The Company recorded a gaingains on the change in fair value of the placement agent warrants of $35,421$1,587 and $3,541 during the ninethree months ended September 30, 2023 and September 30, 2022, respectively, and a loss on the change in fair value of the agent warrants of $39,946$4,759 and $36,486 during the nine months ended September 30, 2021.
2023 and September 30, 2022, respectively. The placement agent warrants issuedexpire in connection with the June 2020 warrant exercise and issuance had a fair value of $9,012 and $45,498 as of September 30, 2022 and December 31, 2021, respectively. The Company recorded a recorded a gain on the change in fair value of the placement agent warrants of $36,486 during the nine months ended September 30, 2022 and loss on the change in fair value of the agent warrants of $44,051 during the nine months ended September 30, 2021.2025.
The table below discloses changes in value of the Company’s embedded derivative liabilities discussed above.
Derivative liability balance at December 31, 2020 | $ | 294,382 | ||
Gain recognized to revalue derivative instrument at fair value | (95,671 | ) | ||
Derivative liability balance at March 31, 2021 | $ | 198,711 | ||
Gain recognized to revalue derivative instrument at fair value | 30,909 | |||
Derivative liability balance at June 30, 2021 | $ | 229,620 |
Derivative liability balance at December 31, 2021 | $ | 129,480 | $ | 129,480 | ||||
Gain recognized to revalue derivative instrument at fair value | (1,908 | ) | (1,908 | ) | ||||
Derivative liability balance at March 31, 2022 | $ | 127,572 | $ | 127,572 | ||||
Gain recognized to revalue derivative instrument at fair value | (95,254 | ) | (95,254 | ) | ||||
Derivative liability balance at June 30, 2022 | $ | 32,318 | $ | 32,318 | ||||
Gain recognized to revenue derivative instrument at fair value | (10,219 | ) | ||||||
Gain recognized to revalue derivative instrument at fair value | (10,219 | ) | ||||||
Derivative liability balance at September 30, 2022 | $ | 22,099 | $ | 22,099 | ||||
Derivative liability balance at December 31, 2022 | $ | 13,833 | ||||||
Gain recognized to revalue derivative instrument at fair value | (953 | ) | ||||||
Derivative liability balance at March 31, 2023 | $ | 12,880 | ||||||
Gain recognized to revalue derivative instrument at fair value | (7,308 | ) | ||||||
Derivative liability balance at June 30, 2023 | $ | 5,572 | ||||||
Gain recognized to revalue derivative instrument at fair value | (3,463 | ) | ||||||
Derivative liability balance at September 30, 2023 | $ | 2,109 | ||||||
NOTE 7 -9 – LOSS PER SHARE
The following table presents the shares used in the basic and diluted loss per common share computations:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Numerator: | ||||||||||||||||
Net loss attributable to common shareholders per common share: basic and diluted calculation | $ | (4,059,484 | ) | $ | (5,438,017 | ) | $ | (17,821,524 | ) | $ | (11,900,662 | ) | ||||
Denominator: | ||||||||||||||||
Weighted average common shares outstanding-basic (1) | 78,383,878 | 65,406,312 | 71,084,454 | 51,272,960 | ||||||||||||
Effect of diluted stock options, warrants, and preferred stock (2) | - | - | - | - | ||||||||||||
Weighted average common shares outstanding - diluted | 78,383,878 | 65,406,312 | 71,084,454 | 51,272,960 | ||||||||||||
Loss per common share-basic | $ | (0.05 | ) | $ | (0.08 | ) | $ | (0.25 | ) | $ | (0.23 | ) | ||||
Loss per common share- diluted | $ | (0.05 | ) | $ | (0.08 | ) | $ | (0.25 | ) | $ | (0.23 | ) | ||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Numerator: | ||||||||||||||||
Net loss attributable to common stockholders: basic and diluted calculation | $ | (3,163,450 | ) | $ | (4,059,485 | ) | $ | (10,508,620 | ) | $ | (17,821,524 | ) | ||||
Denominator: | ||||||||||||||||
Weighted average common shares outstanding - basic | 4,031,356 | 3,919,203 | 3,998,887 | 3,602,515 | ||||||||||||
Effect of diluted stock options, warrants, and preferred stock (1) | - | - | - | - | ||||||||||||
Weighted average common shares outstanding - diluted | 4,031,356 | 3,919,203 | 3,998,887 | 3,602,515 | ||||||||||||
Loss per common share - basic and diluted | $ | (0.78 | ) | $ | (1.04 | ) | $ | (2.63 | ) | $ | (4.95 | ) | ||||
| The following is a summary of the number of underlying shares outstanding at the end of the respective periods that have been excluded from the diluted calculations because the effect on loss per common share would have been anti-dilutive: |
Nine Months ended September 30, | ||||||||
2022 | 2021 | |||||||
Options | 1,021,624 | 1,012,760 | ||||||
RSU | 483,333 | 516,666 | ||||||
Warrants | 36,389,422 | 31,725,118 | ||||||
Preferred stock: series B | 79,246 | 79,246 | ||||||
| Three and Nine Months Ended | ||||||||
| September 30, | ||||||||
2023 | 2022 | |||||||
Options | 48,225 | 51,082 | ||||||
Restricted Stock Units | - | 24,167 | ||||||
Warrants | 1,807,020 | 1,819,927 | ||||||
Series B Convertible Preferred Stock | 16 | 16 | ||||||
There were 79,246 shares of Series B Convertible Preferred Stock outstanding as of September 30, 2023 and September 30, 2022. In total, the 79,246 shares of Series B Convertible Preferred Stock were convertible to 16 shares of common stock as of September 30, 2023 and September 30, 2022 due to the cumulative effect of reverse stock splits.
NOTE 810 – LEASES
The Company’s corporate offices and other offices are located in Pittsburgh, Pennsylvania. Upon expiration of previous leases for office space and laboratory operations, the Company entered into two new leases for office space and laboratory operations on January 4, 2023. The leases each have an approximate five-year term ending February 28, 2028 and the Company recorded corresponding ROU assets and liabilities of $2,922,365.
The Company has an office in Eagan, Minnesota, which is used for office space and manufacturing. Since July 31, 2022, the lease was month-to-month tenancy. On June 1, 2023, the lease was amended for two additional years until May 31, 2025 and the Company recorded a corresponding ROU asset and liability of $74,816.
The Company has an additional office in Birmingham, Alabama, which is used for office space, warehousing and laboratory operations. The lease is effective through August 25, 2025.
Lease expense, recorded within general and administrative expenses, was $230,390 and $183,924 for the three months ended September 30, 2023 and September 30, 2022, respectively, and $665,252 and $536,156 for the nine months ended September 30, 2023 and September 30, 2022, respectively.
The following table summarizes other information related to the Company’s operating leases:
September 30, 2023 | ||||
Weighted average remaining lease term – operating leases in years | 4.23 | |||
Weighted average discount rate – operating leases | 12 | % | ||
The Company’s operating lease obligations as of September 30, 2023 are as follows:
Remainder of 2023 | $ | 209,506 | ||
2024 | 887,424 | |||
2025 | 857,622 | |||
2026 | 803,724 | |||
2027 | 827,909 | |||
Thereafter | 139,022 | |||
Total lease payments | 3,725,207 | |||
Less: interest | (826,044 | ) | ||
Present value of lease liabilities | $ | 2,899,163 |
NOTE 11 – NOTE PAYABLE
In June 2023, the Company purchased director and officer insurance policies with a policy period ending June 2024. In July 2023, the Company financed $364,721 of its total premium by entering into a note payable with a finance provider that requires ten monthly installment payments through April 2024. The note is secured by a first priority lien on the financed policies. The short-term note bears interest at an annual percentage rate of 9.25% over the life of the note. As of September 30, 2023, the outstanding balance of the note was $260,220 including interest.
NOTE 12 – SEGMENTS
The Company has determined that it will focus its resources on applying AI to support the development of optimal cancer therapies, partnering with biopharma clients to help prioritize drugs for development and identify biomarker-informed indications. Its platform provides an informed decision tool to select optimal drug/tumor combinations to increase the probability of success during drug development. As a result of this focused approach, the Company has consolidated its brand under the Predictive Oncology name. Going forward, the Company will operate under the Predictive Oncology tradename with laboratory operations in Pittsburgh, Pennsylvania and Birmingham, Alabama. As of January 1, 2023, the Company changed its reportable segments because of this focused approach. The Company has retrospectively revised the reported segment information for all periods presented for consistency.
The Company has three reportable segments that have been delineated by location and specialty: the Pittsburgh segment provides services that include the application of AI using its proprietary biobank of 150,000+ cancer tumor samples. Pittsburgh also utilizes 3D culture models in drug development. The Birmingham segment provides services and research using a self-contained, automated system that conducts high-throughput, self-interaction chromatography screens, using additives and excipients commonly included in protein formulations resulting in soluble and physically stable formulations of biologics focused on solubility improvements, stability studies, and protein production. The Eagan (Minnesota) segment consists of the production of the United States Food and Drug Administration (“FDA”)-cleared STREAMWAY System for automated fluid waste management, direct-to-drain medical fluid disposal, and associated products.
The Company has determined its operating segments in accordance with ASC 280 – Segment Reporting. Factors used to determine the Company’s reportable segments include the availability of separate financial statements, the existence of locally based leadership across geographic regions, the economic factors affecting each segment, and the evaluation of operating results at the segment level. The Chief Operating Decision Maker (“CODM”) allocates the Company’s resources for each of the operating segments and evaluates their relative performance. Each operating segment listed below has separate financial statements and locally based leadership that are evaluated based on the results of their respective segments. It should be noted that the operating segments below have different products and services. The financial information is condensed, consolidated and evaluated regularly by the CODM in assessing performance and allocating resources.
The Company has four reportable segments: Helomics, zPREDICTA, Soluble and Skyline. See discussion of revenue recognition in Note 1– Summary of Significant Accounting Policies for a description of the products and services recognized in each segment. The segment revenues and segment net losses for the three and nine months ended September 30, 2022 2023 and 20212022 are included in the table below. zPREDICTA Inc. was merged with Predictive Oncology Inc. at the end of 2022 and is now reported as part of the Pittsburgh operating segment. All revenues are earned from external customers.
Revenue
Three Months Ended September 30, | Nine Months Ended, September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
Helomics | $ | 1,821 | $ | 2,164 | $ | 5,543 | $ | 11,314 | ||||||||
Soluble | 29,439 | 27,653 | 64,580 | 76,639 | ||||||||||||
zPREDICTA | 170,816 | - | 261,099 | |||||||||||||
Skyline | 253,751 | 282,675 | 809,875 | 853,063 | ||||||||||||
Corporate | - | 1,171 | 889 | 3,171 | ||||||||||||
Total | $ | 455,827 | $ | 313,663 | $ | 1,141,986 | $ | 944,187 | ||||||||
Segment Gain (Loss)
Three Months Ended September 30, | Nine Months Ended, September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
Helomics | $ | (916,113 | ) | $ | (3,739,275 | ) | $ | (2,902,182 | ) | $ | (6,024,129 | ) | ||||
Soluble | (407,622 | ) | (352,324 | ) | (1,206,550 | ) | (840,790 | ) | ||||||||
zPREDICTA | (160,395 | ) | - | (7,989,585 | ) | - | ||||||||||
Skyline | (109,408 | ) | (102,850 | ) | (259,444 | ) | (378,490 | ) | ||||||||
Corporate | (2,465,946 | ) | (1,243,568 | ) | (5,463,763 | ) | (4,657,253 | ) | ||||||||
Total | $ | (4,059,484 | ) | $ | (5,438,017 | ) | $ | (17,821,524 | ) | $ | (11,900,662 | ) | ||||
Assets
As of September 30, | As of December 31, | |||||||
2022 | 2021 | |||||||
Helomics | $ | 1,061,545 | $ | 1,802,792 | ||||
Soluble | 1,559,917 | 1,742,445 | ||||||
zPREDICTA | 3,815,513 | 10,782,568 | ||||||
Skyline | 15,046,253 | 906,977 | ||||||
Corporate | 11,682,981 | 28,536,489 | ||||||
Total | $ | 33,166,209 | $ | 43,771,271 | ||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Pittsburgh | $ | 417,096 | $ | 172,637 | $ | 441,567 | $ | 266,642 | ||||||||
Eagan | 259,530 | 253,751 | 866,535 | 809,875 | ||||||||||||
Birmingham | 38,430 | 29,439 | 136,959 | 64,580 | ||||||||||||
Corporate | - | - | - | 889 | ||||||||||||
Total | $ | 715,056 | $ | 455,827 | $ | 1,445,061 | $ | 1,141,986 | ||||||||
NOTE9– RELATED PARTY TRANSACTIONS
Segment Loss
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Pittsburgh | $ | (674,952 | ) | $ | (1,076,508 | ) | $ | (3,428,644 | ) | $ | (10,891,767 | ) | ||||
Eagan | (189,031 | ) | (109,408 | ) | (756,115 | ) | (259,444 | ) | ||||||||
Birmingham | (415,083 | ) | (407,622 | ) | (1,483,222 | ) | (1,206,550 | ) | ||||||||
Corporate | (1,884,384 | ) | (2,465,946 | ) | (4,840,639 | ) | (5,463,763 | ) | ||||||||
Total | $ | (3,163,450 | ) | $ | (4,059,484 | ) | $ | (10,508,620 | ) | $ | (17,821,524 | ) | ||||
The Audit Committee has the responsibility to review and approve all transactions to which a related party and the Company may be a party prior to their implementation, to assess whether such transactions meet applicable legal requirements. There are no material related party transactions during the three and nine months ended September 30, 2022.
Assets
One of the Company’s former directors, Richard L. Gabriel, is the Chief Operating Officer of GLG Pharma (“GLG”) and serves as a director of that firm. The Company and GLG have a partnership agreement for the purpose of bringing together their proprietary technologies to build out personalized medicine platform for the diagnosis and treatment of women’s cancer. There has been no revenue or expenses generated by this partnership to date.
Richard L. Gabriel was also contracted as the Chief Operating Officer for TumorGenesis. Through April 1, 2019, Mr. Gabriel received $12,000 per month pursuant to a renewable six-month contract. On May 1, 2019, Mr. Gabriel executed a one-year contract with renewable three-month periods to continue as the Chief Operating Officer for TumorGenesis, receiving $13,500 in monthly cash payments.
Effective May 1, 2021, Richard Gabriel resigned as a member of the Company’s Board of Directors. Mr. Gabriel’s resignation is in connection with his assuming a management position with the Company, and not due to any disagreements with the Company on any of our operations, policies or practices.
NOTE10– RETIREMENT OF CHIEF EXECUTIVE OFFICER
On September 15, 2022, J. Melville Engle announced that he will retire as the Chief Executive Officer of the Company and as Chairman and a member of the Company’s board of directors, effective October 31, 2022. To ensure an orderly transition of his responsibilities, the Company and Mr. Engle entered into a Transition and Separation Agreement dated September 15, 2022 (the “Transition Agreement”) pursuant to which Mr. Engle will continue to serve as Chief Executive Officer until October 31, 2022. The Transition Agreement provides for, among other things, the payment of certain separation benefits to Mr. Engle following termination of his employment, contingent upon Mr. Engle signing, delivering and not rescinding or revoking a general release of claims in favor of the Company, including $524,400 in severance pay, which amount is equal to one year of Mr. Engle’s base salary, a pro-rata bonus for 2022 in the amount of $139,000, and accelerated vesting of 300,000 restricted stock units previously granted to Mr. Engle as part of the Company’s 2021 Long-Term Incentive Plan. As of September 30, 2022. $741,505 is included within Accrued expenses and other liabilities in the Company’s balance sheet for this liability.
| As of | As of | |||||||
| September 30, | December 31, | |||||||
2023 | 2022 | |||||||
Pittsburgh | $ | 3,422,462 | $ | 1,055,228 | ||||
Eagan | 1,336,101 | 946,394 | ||||||
Birmingham | 1,116,990 | 1,353,434 | ||||||
Corporate | 12,291,315 | 22,379,588 | ||||||
Total | $ | 18,166,868 | $ | 25,734,644 | ||||
ITEMItem 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read together with our unaudited condensed consolidated financial statements and related notes thereto set forth in this Quarterly Report on Form 10-Q as well as our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
This Form 10-Q contains “forward-looking statements” that indicateare subject to certain risks and uncertainties, many of which are beyond our control. Actual results could differ materially and adversely from those anticipated in such forward-looking statements as a result of certain factors, including those set forth below and elsewhere in this report. Important risk factors that may cause actual results to differ from projectionsforward-looking statements include:
● | Our | |
● |
| |
● | Our capital needs to accomplish our goals, | |
● | Risks related to recent and future acquisitions, including | |
● | Risks related to our partnerships with other companies, including the need to negotiate the definitive agreements; possible failure to realize anticipated benefits of these partnerships; and costs of providing funding to our partner companies, which may never be repaid or provide anticipated returns; | |
● | Risks related to the initiation, formation, or success of our collaboration arrangements, commercialization activities and product sales levels by our collaboration partners and future payments that may come due to us under these arrangements, | |
● | Risk that we will be unable to protect our intellectual property or claims that we are infringing on others’ intellectual property; | |
● | The impact of competition; | |
● | Acquisition and maintenance of any necessary regulatory clearances applicable to applications of our technology; | |
● | Inability to attract or retain qualified senior management personnel, including sales and marketing personnel; | |
● | Risk that we never become profitable if our product and services are not accepted by potential customers; | |
● | Possible impact of government regulation and scrutiny; |
|
| |
● | Unexpected costs and operating deficits, and lower than expected sales and revenues, if any; | |
● | Adverse results of any legal proceedings; | |
● | The volatility of our operating results and financial condition; | |
● | Management of growth; | |
● | Risk that our business and operations will continue to be materially and adversely affected by | |
● | Other specific risks that may be alluded to in this report. |
All statements, other than statements of historical facts, included in this report regarding our growth strategy, future operations, financial position, estimated revenue or losses, projected costs, prospects and plans, and objectives of management are forward-looking statements. When used in this report, the words “will,” “may,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “plan,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking statements speak only as of the date of this report. We do not undertake any obligation to update any forward-looking statements or other information contained herein. Potential investors should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions, and expectations reflected in or suggested by the forward-looking statements in this report are reasonable, we cannot assure potential investors that these plans, intentions or expectations will be achieved. We disclose important factors that could cause actual results to differ materially from expectations in the “Risk Factors” section and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 20212022 and in item 1A of Part II below. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.
Information regarding market and industry statistics contained in this report is included based on information available to us that we believe is accurate. It is generally based on academic and other publications that are not produced for purposes of securities offerings or economic analysis. We have not reviewed or included data from all sources, and we cannot assure potential investors of the accuracy or completeness of the data included in this report. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and the additional uncertainties accompanying any estimates of future market size, revenue, and market acceptance of products and services. We have no obligation to update forward-looking information to reflect actual results or changes in assumptions or other factors that could affect those statements.
Overview
We operate in four primary business areas. First, we provide drug response prediction services leveragingPredictive Oncology Inc. (“Predictive Oncology”) is a unique collectionknowledge-driven company focused on applying artificial intelligence (“AI”) to support the development of optimal cancer therapies, which can ultimately lead to more than 150,000effective treatments and improved patient outcomes. Through AI, Predictive Oncology uses a proprietary biobank of 150,000+ cancer tumor samples, categorized by tumorpatient type, against drug compounds to help the drug discovery process and powered by artificial intelligence to assist biopharmaceutical companies inincrease the developmentprobability of new oncology drugs primarily through our wholly owned subsidiary Helomics Holding Corporation® (“Helomics”). Second, we develop tumor-specific in vitro modelssuccess. The Company offers a suite of solutions for oncology drug development from early discovery to clinical trials.
We operate in three primary business areas: first, along the drug discovery continuum (i) the application of AI for optimized, high-confidence drug-response predictions within a large experimental space that enables a more informed selection of drug/tumor combinations to increase the probability of success during development and research through our newly acquired wholly-owned subsidiary, zPREDICTA, Inc.®. Third, we offer(ii) the creation and development of tumor-specific 3D cell culture models; second, contract services and research focused on solubility improvements, stability studies, and protein production, primarily with our Soluble Biotech Inc.®, subsidiary. Fourth, we sell and produceand; third, production of the United States Food and Drug Administration (“FDA”)-cleared STREAMWAY System®System for automated fluid waste management, direct-to-drain medical fluid waste disposal and associated products through our incorporated division Skyline Medical Inc. (“Skyine”).products.
We have fourdetermined that we will focus our resources on applying AI to support the development of optimal cancer therapies, partnering with biopharma clients to help prioritize drugs for development and identify biomarker-informed indications. Our platform provides a more informed decision tool to select optimal drug/tumor combinations to increase the probability of success during drug development. As a result of this focused approach, we have consolidated our brand under the Predictive Oncology name. Going forward, we will operate under the Predictive Oncology tradename with laboratory operations in Pittsburgh, Pennsylvania and Birmingham, Alabama. As of January 1, 2023, we have changed in our reportable segments: Helomics, zPREDICTA, Solublesegments because of this focused approach.
We have three reportable segments that have been delineated by location and Skyline. The Helomicsspecialty: our Pittsburgh segment includes clinical testing and contract researchprovides services that include the application of AI.AI using its proprietary biobank of 150,000+ cancer tumor samples. Pittsburgh also utilizes 3D culture models in drug development. Our zPREDICTA segment specializes in organ-specific disease models that provide 3D reconstruction of human tissues accurately representing each disease state and mimicking drug response enabling accurate testing of anticancer agents. Our SolubleBirmingham segment provides services and research using a self-contained, automated system that conducts high-throughput, self-interaction chromatography screens, using additives and excipients commonly included in protein formulations resulting in soluble and physically stable formulations for biologics.of biologics focused on solubility improvements, stability studies, and protein production. Our SkylineEagan (Minnesota) segment consists of the production of the United States Food and Drug Administration (“FDA”)-cleared STREAMWAY System product sales,for automated fluid waste management, direct-to-drain medical fluid disposal, and our TumorGenesis subsidiary is included within corporate. Going forward, we have determined that we will focus our resources on the Helomics and zPREDICTA segments and our primary mission statements to accelerate patient-centric drug discovery to improve patient outcomes in cancer treatment, harnessing the power of AI, and to develop tumor-specific 3D cell culture models that provide accurate 3D reconstruction of human tissues representing each cancer disease state.associated products.
Capital Requirements
Since inception, we have been unprofitable. We incurred net losses of $4,059,484$10,508,620 and $5,438,017$17,821,524 for the threenine months ended September 30, 2022,2023, and September 30, 2021,2022, respectively. As of September 30, 2022,2023, and December 31, 2021,2022, we had an accumulated deficit of $145,861,805$164,286,536 and $128,040,282,$153,777,916, respectively.
We have never generated sufficient revenues to fund our capital requirements. Since 2017, we have diversified our business by investing in ventures, including making significant loans and investments in early-stage companies. These activities led to the acquisition of Helomics in April 2019, the purchase of the assets of three businesses in 2020 and the acquisition of zPREDICTA in November 2021, each of which have accelerated our capital needs. We have funded our operations through a variety of debt and equity instruments. See “Liquidity and Capital Resources – Liquidity and Plan of Financing”Financing; Going Concern Qualification” and “Liquidity and Capital Resources – Financing Transactions” below.
Our future cash requirements and the adequacy of available funds depend on our ability to generate revenues from our Helomics, Solubledrug discovery businesses located in Pittsburgh and zPREDICTA segments;Birmingham; our ability to continue to sell our Skyline Medical products and services and to reach profitability in the Skyline Medical businessall our businesses; and the availability of future financing to fulfill our business plans. See “Liquidity and Capital Resources – Liquidity and Plan of Financing”Financing; Going Concern Qualification” below.
Our limited history of operations, especially in our precision medicinedrug discovery business, and our change in the emphasis of our business, starting in 2017, makes prediction of future operating results difficult. We believe that period-to-period comparisons of our operating results should not be relied on as predictive of our future results.
Results of Operations
Comparison of three and nine months ended September 30, 20222023 and September 30, 20212022
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||||||||||||||||||
2022 | 2021 | Difference | 2022 | 2021 | Difference | 2023 | 2022 | Difference | 2023 | 2022 | Difference | |||||||||||||||||||||||||||||||||||||
Revenue | $ | 455,827 | $ | 313,663 | $ | 142,164 | $ | 1,141,986 | $ | 944,187 | $ | 197,799 | $ | 715,056 | $ | 455,827 | $ | 259,229 | $ | 1,445,061 | $ | 1,141,986 | $ | 303,075 | ||||||||||||||||||||||||
Cost of goods sold | 108,151 | 110,165 | 2,014 | 351,669 | 350,800 | (869 | ) | 106,940 | 108,151 | 1,211 | 386,840 | 351,669 | (35,171 | ) | ||||||||||||||||||||||||||||||||||
General and administrative expense | 3,287,918 | 2,061,458 | (1,226,460 | ) | 8,063,265 | 7,410,208 | (653,057 | 2,583,574 | 3,287,918 | 704,344 | 7,624,085 | 8,063,265 | 439,180 | |||||||||||||||||||||||||||||||||||
Operations expense | 857,130 | 648,935 | (208,195 | ) | 2,657,314 | 1,791,543 | 865,771 | 842,579 | 857,130 | 14,551 | 2,714,139 | 2,657,314 | (56,825 | ) | ||||||||||||||||||||||||||||||||||
Sales and marketing expense | 333,377 | 172,869 | (160,508 | ) | 908,867 | 447,298 | 461,569 | 336,043 | 333,377 | (2,666 | ) | 1,135,383 | 908,867 | (226,516 | ) | |||||||||||||||||||||||||||||||||
Revenue.We recorded revenue of $715,056 and $455,827 in the three months ended September 30, 2023 and $313,6632022, respectively, and $1,445,061 and $1,141,986 in the nine months ended September 30, 2023 and 2022, respectively. Revenue in the three months ended September 30, 2023 was primarily derived from the Pittsburgh operating segment related to development of tumor-specific 3D cell culture models, while revenue in the three months ended September 30, 2022 was primarily derived from the Eagan operating segment. The Pittsburgh operating segment contributed revenues of $417,096 and 2021, respectively. We sold a net of 2 and 3 STREAMWAY System units during$172,637 in the three months ended September 30, 2023 and September 30, 2022, respectively, while the Eagan operating segment contributed $259,530 and 2021,$253,751 in the three months ended September 30, 2023 and September 30, 2022, respectively.
We recorded revenue of $1,141,986 and $944,187 Revenue in the nine months ended September 30, 20222023 and 2021, respectively. RevenueSeptember 30, 2022 was primarily derived from the Skyline business. The nine months ended September 30, 2022 also included $261,099 from our zPREDICTA division. The Soluble reportableEagan operating segment, recorded $64,580which contributed $866,535 and $76,639 during$809,875 for the nine months ended September 30, 20222023 and 2021 and there was an additional $5,543 and $11,314 from our Helomics reportable segment during the nine months ended September 30, 2022, and 2021, respectively. There were 7 and 10 sales of STREAMWAY units in the nine months ended September 30, 2022 and 2021 respectively.
Cost of goods sold.Cost of sales was $106,940 and $386,840 in the three and nine months ended September 30, 2023 compared to $108,151 and $351,669 in the three and nine months ended September 30, 20222022. The gross profit margin was approximately 85% and $110,165 and $350,80073% in the three and nine months ended September 30, 2021, respectively. The gross profit margin was approximately2023 compared to 76% and 69% in the three and nine months ended September 30, 2022 compared to 65%2022. The improvement in gross profit margins for both of the prior year periods. Our margins increased in the three months ended September 30, 2022periods was primarily due to a larger portion of revenue being generated fromchange in sales mix to higher margin contracted services primarily provided by our CRO services from our zPREDICTA subsidiary. Our margins decreased in the nine-month period in the current year as costs were higher, specifically related to disposables.Pittsburgh and Birmingham operating segments.
General and administrative expense.General and administrative (“G&A”) expense primarily consists of management salaries, professional fees, consulting fees, travel expense, administrative fees, and general office expenses.
G&A expense increaseddecreased by $1,226,460 for$704,344 to $2,583,574 in the three months ended September 30, 20222023 compared to 2021. The increase was primarily due$3,287,918 in the comparable period in 2022. G&A expense decreased by $439,180 to higher employee related expenses due to acquisition of the zPREDICTA reportable segment, costs associated with the consolidation of our TumorGenesis division to Pittsburgh and the retirement of our CEO, offset by other costs due to changes$7,624,085 in headcount. Other increases were driven by higher professional and outside services.
G&A expenses increased by $653,057 for the nine months ended September 30, 20222023 compared to 2021.$8,063,265 in the comparable period in 2022. The increase wasdecreases in both periods were primarily due to decreased severance to former employees as well as decreased depreciation and amortization expenses associated with the retirement of our CEO, offset by lower professional fees for legaldue to fully depreciated assets and investor relations services,prior period impairments, offset by increased corporate insurance expensesfees for investor relations and employee related expenses due to increased headcount including the acquisition of the zPREDICTA reportable segment.advisory boards as well as rent and other general and administrative expenses.
Operations expense.Operations expense primarily consists of expenses related to product development and prototyping and testing.
Operations expense increaseddecreased by $208,195$14,551 to $857,130$842,579 in the three months ended September 30, 20222023 compared to 2021$857,130 in the comparable period in 2022. The decrease was primarily due to decreased consultant fees and decreased spending on tools, calibration, and testing in Eagan.
Operations expense increased by $865,771$56,825 to $2,657,314$2,714,139 in the nine months ended September 30, 20222023 compared to 2021.$2,657,314 in the comparable period in 2022. The increase in the nine-month period was driven primarily dueby higher cloud computing expenses related to higher staff related expenses including the increased headcount at our zPREDICTA reportablePittsburgh operating segment, partiallywhich were offset by lower research and development expenses.decreases in expenses related to the closure of the offices of the Company’s former wholly-owned subsidiaries.
Sales and marketing expense.Sales and marketing expense consistedconsists of expenses required to sell products through independent reps, attendance at trade shows, product literature and other sales and marketing activities.
Sales and marketing expense increased by $160,508$2,666 to $333,377$336,043 in the three months ended September 30, 20222023 compared to $172,869$333,377 in the comparable period in 2021. Such expenses in 2021 related almost entirely to our corporate marketing and business development staffing and sales support for our Skyline business. The increase in 2022 was a direct result of the increases in marketing and business development staff in 2022. Sales and Marketingmarketing expense increased by $461,569$226,516 to $908,867$1,135,383 in the nine months ended September 30, 20222023 compared to 2021.$908,867 in the comparable period in 2022. The increases in both periods were primarily due to the increase was driven by increasedin marketing and business development staff related expenses and other advertising and marketing expenses.hired after September 30, 2022.
Loss in Goodwill Impairmenton impairment of property and equipment.. We recognized no goodwillrecorded a loss on impairment charge for the three months ended September 30, 2022 compared to a goodwill impairment charge of $2,813,792 for the comparable period in 2021. We recognized a goodwill impairment chargeproperty and equipment of $7,231,093 related to the zPREDICTA segment$162,905 during the nine months ended September 30, 2022 compared2023. We prepared an undiscounted cash flow for our Birmingham asset group as of June 30, 2023 to goodwillevaluate long-lived assets, then completed a fair value assessment which resulted in the impairment charge of $2,813,792 relatedand allocated the impairment to the Helomics segment duringassets of the comparable period in 2021.affected asset group. Please see Note 4 – Property and Equipment to our unaudited condensed consolidated financial statements for further information.
Other income.We earned other income of $63,047$47,838 in the three months ended September 30, 20222023 compared to $58,830$63,047 in the comparable period in 20212022 and earned other income of $146,524$118,617 in the nine months ended September 30, 2022,2023 compared to $144,122$146,524 in the comparable period in 2021.2022. Other income includedis primarily interest and dividend income.
Other expense.We incurred other expense of $60,671 in the three and nine months ended September 30, 2023 compared to $2,001 in the three months ended September 30, 2022 compared to $7,413 in the comparable period in 2021 and other expense of $5,207 in the nine months ended September 30, 20222022. The increase was primarily due to the write off of a note receivable deemed uncollectible.
Gain on derivative instruments. We recorded a gain of $3,463 in the three months ended September 30, 2023 compared to $244,214$10,219 in the comparable period in 2021. Other expense2022 and recorded a gain of $11,724 in the nine months ended September 30, 2023 compared to $107,381 in the comparable period in 2022 consisted primarily of net interest expense. Net interest expense was significantly lower in the nine-month period duerelated to the repaymentchange in fair value of our remaining debt in the first quarter of 2021.derivative.
Gain on derivative instruments. We recorded a gain of $10,219 in the three months ended September 30, 2022 compared to a gain of $4,122 in the comparable period in 2021 and incurred gains of $107,381 in the nine months ended September 30, 2022, compared to gains of $68,884 in the comparable period in 2021 related to the changes in fair market value on derivatives.
Liquidity and Capital Resources
Cash Flows
Net cash used in operating activities was $9,135,812$10,107,030 and $8,464,821$9,135,812 for the nine months ended September 30, 20222023 and September 30, 2021,2022, respectively. Cash used in operating activities increased in the 20222023 period primarily because of the increase in cash used foroperating expenses and changes in working capital and higher operating costs.capital.
Cash flowsNet cash used in investing activities was $412,096$309,666 and $820,233$412,096 for the nine months ended September 30, 20222023 and September 30, 2021,2022, respectively. Cash used in these periods was frominvesting activities decreased in the 2023 period primarily due to a decrease in the acquisition of fixed assets and cash used to maintain our intangible assets.
Net cash provided by financing activities was $6,739,031$260,221 and $50,378,237$6,739,031 for the nine months ended September 30, 20222023 and September 30, 2021,2022, respectively. The cash provided in the nine months ended September 30, 2022 was primarily due to proceeds from the issuance of common stock and warrants in connection withwhile the May 2022 offering and the issuance of common stock pursuant to the equity line agreement. The cash provided in the nine months ended September 30, 2021 was2023 primarily duerelated to proceeds from issuance of common stock and warrants in six financing transactions andinsurance premiums over the exercise of warrants by investors, in addition to proceeds from the issuance of common stock pursuant to the equity line agreement, offset by the repayment of outstanding debt.insured period with a short-term note payable.
Liquidity and Plan of FinancingFinancing; Going Concern
We have incurred a net loss in each of our annual periods since our inception. We incurred a net loss of $17,821,524significant and recurring losses from operations for the nine months endedpast several years and had an accumulated deficit of $164,286,536 as of September 30, 2022. On2023. We had cash and cash equivalents of $11,915,048 as of September 30, 2022, we had $25,393,738 in cash. In addition2023 and need to raise significant additional capital to meet our cash,operating needs. Our short-term obligations as of September 30, 2023 were $4,171,891, consisting primarily of aggregate accounts payable and accrued expenses of $2,979,064 and operating lease obligations of $555,541. As of September 30, 2023, we also have access to additional capital through our $15,000,000 equity linehad a short-term note payable of $260,220 that bears interest at an annual percentage rate of 9.25% and long-term operating lease obligations of $2,343,622 with a weighted average remaining available balancelease term of $8,877,820, subject4.23 years. We do not expect to requirements for marketgenerate sufficient operating revenue to sustain our operations in the near term. Year-to-date, we incurred negative cash flows from operations of $10,107,030. Although we have attempted to improve our operating margin by bolstering revenues and curtailing expenses, and continue to seek ways to generate revenue through business development activities, there is no guarantee that we will be able to improve our operating margin sufficiently or achieve profitability in the near term. These conditions including trading volume and stock price, and subjectraise substantial doubt about our ability to continue as a going concern. We are evaluating alternatives to obtain the required additional funding to maintain future operations. These alternatives may include, but are not limited to, equity financing, issuing debt, entering into other limitations. In connection with the May 2022 offerings,financing arrangements, or monetizing operating businesses or assets. Despite these potential sources of funding, we agreed notmay be unable to access the remaining balancefinancing or obtain additional liquidity when needed or under the equity lineacceptable terms, if at all. Therefore, there is substantial doubt about our ability to continue as a going concern for a period of one year after the closing date or May 18, 2023.
Since our inception,that the financial statements are issued. The condensed consolidated financial statements included in this report have been prepared assuming we have received net proceedswill continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business, and do not include any adjustments that might result from the saleoutcome of our common stock (through our initial public offering and subsequent public offerings, including at-the-market offerings) which have funded our operations. We believe that our existing capital resources will be sufficient to support our operating plan for the next twelve months and beyond. If we anticipate that our actual results will differ from our operating plan, we believe we have sufficient capabilities to enact cost savings measures to preserve capital. We may also seek to raise additional capital to support our growth through the incurrence of additional debt, the sale of equity or other alternatives (including asset sales) or a combination thereof. Such additional capital may not be available on terms acceptable to us or at all. If we raise funds by issuing equity or equity-linked securities, the ownership of some or all of our stockholders will be diluted, and the holders of new equity securities may have priority rights over our existing stockholders. If adequate funds are not available, we may be required to curtail operations significantly or obtain funds by entering into agreements on unattractive terms. Our inability to raise capital could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, the recent decline in economic activity caused by events such as the armed conflict between Russia and Ukraine and by the COVID pandemic, together with the deterioration and/or volatility of the credit and capital markets, could have an adverse impact on potential sources of future financing.this uncertainty.
Financing Transactions
We have funded our operations through a combination of debt and equity instruments including short-term borrowings, and a variety of debt and equity offerings.
May 2022 Offerings
On May 16, 2022, the Company, issued and sold to several institutional and accredited investors pursuant in a registered direct offering (the “First Offering”) an aggregate of 3,837,280 shares of its common stock, at a purchase price of $0.60 per share. Pursuant to the securities purchase agreement, in a concurrent private placement, the Company also issued to these purchasers unregistered warrants to purchase up to an aggregate of 3,837,280 shares of common stock (the “Warrants”). The Warrants have an exercise price equal to $0.70 per share, will become exercisable six months from the date of issuance, and will expire five and one-half years from the date of issuance.
In addition, in a concurrent registered direct offering (the “Second Offering”), on May 16, 2022, the Company entered into a securities purchase agreement with several institutional and accredited investors pursuant to which the Company issued and sold to several institutional and accredited investors pursuant an aggregate of 8,162,720 shares of its common stock, at a purchase price of $0.60 per share. The Company also entered into a warrant amendment agreement (the “Warrant Amendment”) with each of the purchasers in the Second Offering. Under the Warrant Amendment, certain existing warrants to purchase up to 16,325,435 shares of common stock that were previously issued in 2020 and 2021 to those purchasers, with exercise prices ranging from $1.00 to $2.00 per share (the “Existing Warrants”), were amended to: (i) lower the exercise price of the Existing Warrants to $0.70 per share, (ii) provide that the Existing Warrants, as amended, will not be exercisable until six months following the closing date of the Second Offering, and (iii) extend the original expiration date of the Existing Warrants by five and one-half years following the close of the Second Offering.
In each case, the Company paid to the placement agent an aggregate fee equal to 7.5% of the aggregate gross proceeds received by the Company in the offering and a management fee equal to 1% of the aggregate gross proceeds received by the Company in the offering and provided the placement agent expense allowance of $65,000 for non-accountable and other out-of-pocket expenses. In addition, the Company granted to the placement agent or its assigns warrants to purchase 7.5% of the shares sold to investors in the offering at an exercise price equal to 125% of the price of the shares in the transaction, or $0.75 per share, with a term of five years (the “Agent Warrants”). The Agent Warrants become exercisable six months after issuance.
2021 Offerings
In January and February 2021, the Company completed a series of five offerings, all of which were priced at-the-market under applicable NASDAQ rules. The first four offerings were registered direct offerings of common stock under its shelf registration statement, and in each such case, in a concurrent private placement, the Company also issued such investors one warrant to purchase common stock for each two shares purchased in the transaction. Following those four offerings, the Company completed a private placement of common stock, with each investor receiving one warrant to purchase common stock for each two shares purchased in the transaction. In June 2021, the Company completed a registered direct offering of common stock and warrants. The warrants became exercisable on the effective date of an increase in the number of shares of the Company’s authorized common stock, which occurred on August 17, 2021, and expire three years after the initial exercise date. In each case, each such investor warrant is exercisable immediately upon issuance and will expire five and one-half years from the issue date. In each case, the Company paid to the placement agent an aggregate fee equal to 7.5% of the aggregate gross proceeds received by the Company in the offering and a management fee equal to 1% of the aggregate gross proceeds received by the Company in the offering and reimbursed the placement agent for certain non-accountable and out-of-pocket expenses. In addition, the Company granted to the placement agent, or its assigns warrants to purchase 7.5% of the shares sold to investors in the offering at an exercise price equal to 125% of the price of the shares in the transaction, with a term of five years for the registered direct offerings (three years for the June 2021 offering) or five and one-half years for the private placement.
These 2021 offerings were as follows:
Offering Closing Date | Shares of Common Stock | Sale Price per Share* | Investor Warrants | Exercise Price per Share – investor Warrants | Placement Agent Warrants | Exercise Price per Share – Placement Agent Warrants | Gross Proceeds of Offering | Net Proceeds of Offering | ||||||||||||||||||||||||
January 12, 2021 (registered direct) | 3,650,840 | $ | 0.842 | 1,825,420 | $ | 0.80 | 273,813 | $ | 1.0525 | $ | 3,074,007 | $ | 2,731,767 | |||||||||||||||||||
January 21, 2021 (registered direct) | 2,200,000 | $ | 1.00 | 1,100,000 | $ | 1.00 | 165,000 | $ | 1.25 | $ | 2,200,000 | $ | 1,932,050 | |||||||||||||||||||
January 26, 2021 (registered direct) | 3,414,970 | $ | 1.20 | 1,707,485 | $ | 1.20 | 256,123 | $ | 1.50 | $ | 4,097,964 | $ | 3,668,687 | |||||||||||||||||||
February 16, 2021 (registered direct) | 4,222,288 | $ | 1.75 | 2,111,144 | $ | 2.00 | 316,672 | $ | 2.1875 | $ | 7,389,004 | $ | 6,679,989 | |||||||||||||||||||
February 23, 2021 (private placement) | 9,043,766 | $ | 1.95 | 4,521,883 | $ | 2.00 | 678,282 | $ | 2.4375 | $ | 17,635,344 | $ | 16,064,739 | |||||||||||||||||||
June 16, 2021 (registered direct) | 15,520,911 | $ | 1.375 | 15,520,911 | $ | 1.25 | 1,164,068 | $ | 1.71875 | $ | 21,341,252 | $ | 19,446,296 | |||||||||||||||||||
Total | 38,052,775 | 26,786,843 | 2,853,958 | $ | 55,737,571 | $ | 50,523,528 | |||||||||||||||||||||||||
* Sale price includes one share and a warrant to purchase one-half share (or one whole share in the case of the June 16, 2021 offering).
Secured Notes and Repayment in Full
On March 1, 2021, the Company used $5,906,802 of the proceeds of the private placement on February 23, 2021, described above under “2021 Offerings”, to repay in full the outstanding principal and interest and applicable premium amounts under the convertible secured promissory notes to two private investors in the original principal amount of an aggregate $2,297,727 issued in September 2018, the secured promissory note with a principal amount of $847,500 issued during September 2019 and the secured promissory note with a principal amount of $1,450,000 issued on February 5, 2020.
2021 Warrant Exercises
During the period January 1, 2021 through September 30, 2021, the holders of outstanding investor warrants have exercised such warrants for the total purchase of 5,269,059 shares at a weighted average exercise price of $0.86 per share, for total proceeds of $4,513,860.
Equity Line
On October 24, 2019, the Company entered into an equity purchase agreement with an investor, providing for an equity financing facility. Upon the terms and subject to the conditions in the purchase agreement, the investor is committed to purchase shares having an aggregate value of up to $15,000,000 of the Company’s common stock for a period of up to three years. The Company issued to the investor 104,651 commitment shares at a fair market value of $450,000 for entering into the agreement. From time to time during the three-year commitment period, provided that the closing conditions are satisfied, the Company may provide the investor with put notices to purchase a specified number of shares subject to certain limitations and conditions and at specified prices, which generally represent discounts to the market price of the common stock. As of September 30, 2022, there was an available balance of $8,877,820 under the equity line. In connection with the May 2022 offerings, the Company agreed not to access the remaining balance for a period of one year after the closing date, or May 18, 2022. Additional issuances under this line will be dilutive. During the nine months ended September 30, 2022, the Company issued 315,000 shares of its common stock valued at $236,009 pursuant to the equity line.
Off-Balance Sheet Arrangements
We have not engaged in any off-balance sheet activities as defined in Item 303(a)(4) of Regulation S-K.
Accounting Standards and Recent Accounting Developments
See Note 1 - Summary of Significant Accounting Policies to the unaudited, Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for a discussion of recent accounting developments.
ITEMItem 3. Quantitative and Qualitative Disclosures About Market Risk
Not required.
ITEMItem 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), defines the term “disclosure controls and procedures” as those controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Based on their evaluation as of September 30, 2022,2023, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective as of September 30, 20222023 due to the material weaknessweaknesses in internal controls regarding adequate accounting resources, ascontrol over financial reporting described below.
Material WeaknessWeaknesses in Internal Controls.In connection with the evaluation of the Company’s internal control over financial reporting as described above, management has identified the following deficiencies in our control environment in the current period that constitute material weaknesses in the Company’s internal control over financial reporting. Therefore, there was a risk that a potential material misstatement of the consolidated financial statements could occur without being prevented or detected on a timely basis.
Management hasdid not maintain effective information technology general controls in the areas of user access management, administrative user access, and segregation of duties within its financial information systems and other financial reporting controls that are relevant to the Company’s preparation of financial statements. As a result of those segregation of duties deficiencies, the related manual business process controls were determined to be ineffective.
The material weakness first reported in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 continued to exist as of September 30, 2023. Management determined that we have not maintained adequate accounting resources with a sufficient understanding of accounting principles generally accepted in the United States of America (“U.S. GAAPGAAP”) to allow us to properly identify and account for new complex technical accounting transactions. Management has determined that this represents a material weakness in our internal control over financial reporting.
Notwithstanding the material weaknessweaknesses in our internal control over financial reporting, we have concluded that the condensed consolidated financial statements and other financial information included in our annual and quarterly filings fairly present in all material respects our financial condition, results of operations and cash flows as of, and for, the periods presented.
Material Weakness Remediation Activities. ToIn response to the material weakness, management, with oversight of the Audit Committee of the Company’s Board of Directors, has begun the process of, and is committed to, designing and implementing effective measures to strengthen our internal controls over financial reporting and remediate the material weakness in ourweakness. Our planned internal control over financial reporting describedremediation efforts include:
● | Management is evaluating logical access, including administrative user access, and eliminating known segregation of duties conflicts. | |
● | Management has designed and is in the process of implementing periodic logical access review controls to monitor user access and proper segregation of duties. | |
● | Management has reevaluated our overall staffing levels within the accounting department and during the second quarter of 2023 we hired additional resources with qualifications that include a high level of experience with complex technical accounting transactions and application of U.S. GAAP. |
Once the above we have reevaluated our overall staffing levels within the accounting departmentactions and have determined we need to hire additional resources with qualifications that include a high level of experience with complex technical accounting transactions and application of U.S. GAAP. We have hired these resources. Once these processes have been in operation for a sufficient period of time for our management to conclude that the material weakness has been fully remediated and our internal controls over financial reporting are effective, we will consider this material weakness fully addressed. We are committed to the continuous improvement of our internal control over financial reporting and will continue to diligently review our internal control over financial reporting.
Changes in Internal Control Over Financial Reporting
ThereExcept for the changes described above, there were no other changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the ninethree months ended September 30, 20222023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
NoneIn the ordinary course of business, we may periodically become subject to legal proceedings and claims arising in connection with ongoing business activities from time to time. The results of litigation and claims cannot be predicted with certainty, and unfavorable resolutions are possible and could materially affect our results of operations, cash flows or financial position. In addition, regardless of the outcome, litigation could have an adverse impact on us because of defense costs, diversion of management attention and resources and other factors.
Based on information readily available, as of the end of the period covered by this Quarterly Report on Form 10-Q, there are no pending legal proceedings that, in the opinion of management, are likely to result in a material adverse effect on our financial position, results of operations or cash flows.
As of the date of this Quarterly Report on Form 10-Q, there have been no material changes to our risk factors from those disclosed under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 21, 2023, except as described below.
There is substantial doubt about our ability to continue as a going concern. We will require additional financing to fund operating expenses and fulfill our business plan. Such financing, if available, may be dilutive.
We have incurred significant and recurring losses from operations for the past several years and had an accumulated deficit of $164,286,536 as of September 30, 2023. We had cash and cash equivalents of $11,915,048 as of September 30, 2023 and need to raise significant additional capital to meet our operating needs. Our short-term obligations as of September 30, 2023 were $4,171,891, consisting primarily of aggregate accounts payable and accrued expenses of $2,979,064 and operating lease obligations of $555,541. As of September 30, 2023, we also had a short-term note payable of $260,220 that bears interest at an annual percentage rate of 9.25% and long-term operating lease obligations of $2,343,622 with a weighted average remaining lease term of 4.23 years. We do not expect to generate sufficient operating revenue to sustain our operations in the near term. Year-to-date, we incurred negative cash flows from operations of $10,107,030. Although we have attempted to improve our operating margin by bolstering revenues and curtailing expenses, and continue to seek ways to generate revenue through business development activities, there is no guarantee that we will be able to improve our operating margin sufficiently or achieve profitability in the near term. These conditions raise substantial doubt about our ability to continue as a going concern. We are evaluating alternatives to obtain the required additional funding to maintain future operations. These alternatives may include, but are not limited to, equity financing, issuing debt, entering into other financing arrangements, or monetizing operating businesses or assets. Despite these potential sources of funding, we may be unable to access financing or obtain additional liquidity when needed or under acceptable terms, if at all. Therefore, there is substantial doubt about our ability to continue as a going concern for one year after the date that the financial statements are issued. The condensed consolidated financial statements for the quarter ended September 30, 2023 have been prepared assuming we will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.
The use of AI in our business is subject to risks associated with new and rapidly evolving technologies and industries, may result in reputational harm or liability, and may not result in the development of commercially viable therapies, drugs or treatments.
Our business model relies on the use of AI to support the development of optimal cancer therapies. Through AI, we use a proprietary biobank of 150,000+ cancer tumor samples, categorized by patient type, and make optimized, high-confidence drug-response predictions against drug compounds to enable a more informed selection of drug/tumor combinations. While we believe that AI may potentially enable more efficient drug research and clinical development than the conventional model, our approach is novel and has not yet been widely studied. Our use of AI is subject to risks and challenges associated with new, disruptive, and rapidly evolving technologies and industries, which may affect its adoption and the success of our business. The algorithms we use may be flawed, our datasets may be insufficient or contain biased information, and inappropriate or controversial data practices by us or others could impair the acceptance of AI solutions. These deficiencies could undermine the predictions or analysis that AI applications produce, subjecting us to competitive harm, legal liability, and brand or reputational harm. Additionally, changes in laws and regulations could impact the usefulness of our solution and could necessitate modifications in our business to accommodate such changes. The regulatory landscape for AI is continually evolving, and both the FDA and the European Union are in the process of issuing comprehensive guidance on AI software which may change how our product is regulated.
Further, the cost and time needed to discover drug candidates is difficult to predict, and our efforts may not result in the discovery and development of commercially viable therapies, drugs, or clinical treatments. Our estimates of our defined patient populations available for study and treatment may be lower than expected, which could adversely affect our or our partners’ ability to conduct clinical trials and may also adversely affect the size of any market for therapies, drugs or treatments we may license for commercialization. Our approach may not result in time savings, higher success rates or reduced costs as we expect it to, and if not, we may not attract collaborators or develop new drugs as quickly or cost effectively as expected and therefore we may not be able to commercialize our approach as expected at this time.
We have entered into, and may enter into additional collaborations, in-licensing arrangements, joint ventures, strategic alliances or partnerships with third parties that may not result in the development of commercially viable products or the generation of significant future revenues.
We may enter into collaborations, in-licensing arrangements, joint ventures, strategic alliances, partnerships or other arrangements to develop products and to pursue new markets. Proposing, negotiating and implementing collaborations, in-licensing arrangements, joint ventures, strategic alliances or partnerships may be a lengthy and complex process. Other companies, including those with substantially greater financial, marketing, sales, technology or other business resources, may compete with us for these opportunities or arrangements. We may not identify, secure, or complete any such transactions or arrangements in a timely manner, on a cost-effective basis, on acceptable terms or at all. We have limited institutional knowledge and experience with respect to these business development activities, and we may also not realize the anticipated benefits of any such transaction or arrangement. In particular, these collaborations may not result in the development of products that achieve commercial success or result in significant revenues and could be terminated prior to developing any products. Our ability to generate revenues from these arrangements will depend in part on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements.
Additionally, we may not be in a position to exercise sole decision-making authority regarding the transaction or arrangement, which could create the potential risk of creating impasses on decisions, and our future collaborators may have economic or business interests or goals that are, or that may become, inconsistent with our business interests or goals. It is possible that conflicts may arise with our collaborators, such as conflicts concerning the achievement of performance milestones, or the interpretation of significant terms under any agreement, such as those related to financial obligations or the ownership or control of intellectual property developed during the collaboration. If any conflicts arise with any future collaborators, they may act in their self-interest, which may be adverse to our best interest, and they may breach their obligations to us. In addition, we may have limited control over the amount and timing of resources that any future collaborators devote to our or their future products. Disputes between us and our collaborators may result in litigation or arbitration which would increase our expenses and divert the attention of our management. Further, these transactions and arrangements will be contractual in nature and will generally be terminable under the terms of the applicable agreements and, in such event, we may not continue to have rights to the products relating to such transaction or arrangement or may need to purchase such rights at a premium.
If we enter into in-bound intellectual property license agreements, we may not be able to fully protect the licensed intellectual property rights or maintain those licenses. Future licensors could retain the right to prosecute and defend the intellectual property rights licensed to us, in which case we would depend on the ability of our licensors to obtain, maintain and enforce intellectual property protection for the licensed intellectual property. These licensors may determine not to pursue litigation against other companies or may pursue such litigation less aggressively than we would. Further, entering into such license agreements could impose various diligence, commercialization, royalty or other obligations on us. Future licensors may allege that we have breached our license agreement with them, and accordingly seek to terminate our license, which could adversely affect our competitive business position and harm our business prospects.
In addition to the foregoing risks, and the other information set forth in thethis Quarterly Report on Form 10-Q, the reader should carefully consider the risks included in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 20212022 before making an investment decision. Our business could be harmed by any of these risks. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. The reader should also carefully consider these risk factors.
ITEMItem 2. Unregistered Sales of Equity Securities and Use of Proceeds
Information regarding sales of unregistered securities during the prior year periods covered hereby has been included in previous reports on FormForms 8-K or 10-K. The following is a summary of our transactions during
During the nine months ended September 30, 2022 involving2023, there were no sales of our securities that were not registered under the Securities Act:
During the nine months ended September 30, 2022, we issued an aggregate of 29,346 shares of common stock for an aggregate payment of $25,000 for professional research services.
The sale of the above securities was exempt from registration under the Securities Act of 1933, as amended, in reliance on the exemption from federal registration under Section 4(a)(2) of the Securities Act and/or Rule 506 promulgated thereunder, based on our belief that the offer and sale of such securities has not and will not involve a public offering. The recipient of the securities in the transaction represented its intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in the transaction.Act.
ITEMItem 3. Defaults Upon Senior Securities
None.
ITEMItem 4. Mine Safety Disclosures
Not applicable.
Not applicable.
Exhibit Number | Description | |
101.INS* | Inline XBRL Instance Document | |
101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
See the attached exhibit index.
* Filed herewith
** Furnished herewith
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PREDICTIVE ONCOLOGY INC. | |||
Date: November | By: | /s/ Raymond F. Vennare | |
Raymond F. Vennare | |||
Chief Executive Officer | |||
Date: November | By: | /s/ | |
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Interim Chief Financial Officer |
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* Filed herewith
** Furnished herewith