Filing identity and period
The supplied filing is Precision Therapeutics Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2018—not a filing for Axe Compute Inc. The company changed its name from Skyline Medical Inc. to Precision Therapeutics effective February 1, 2018; its ticker became AIPT. The business included STREAMWAY infectious-fluid management products, a 25% investment in Helomics, and wholly owned TumorGenesis.
Financial performance and liquidity
| Metric | Three months ended June 30, 2018 | Six months ended June 30, 2018 | Comparable 2017 period |
|---|---|---|---|
| Revenue | $358,586 | $770,179 | $106,822 quarter; $281,988 six months |
| Gross profit / margin | $249,616 / 69.6% | $543,865 / 70.6% | $84,812 / 79.4% quarter; $222,985 / 79.1% six months |
| Net loss | $2,373,410 | $4,133,432 | $2,543,670 quarter; $3,885,517 six months |
| Loss per share, basic and diluted | $0.20 | $0.36 | $0.41 quarter; $0.62 six months |
| Operating cash used | Not separately provided for the quarter | $3,107,531 | $2,070,804 used in six months |
Revenue rose 236% for the quarter and 173% for the half-year. The company sold 25 STREAMWAY units in the first half versus three a year earlier. Gross margin declined year over year, which management attributed to higher costs; it expected greater sales volume could improve purchasing costs and margins. The six-month net loss includes a $960,508 equity-method loss on Helomics.
At June 30, cash and cash equivalents were $1,004,269; current assets were $2,007,244 and current liabilities $639,256. Total assets were $4,001,034, total liabilities $639,256, and stockholders’ equity $3,361,778. The balance sheet lists no borrowing liabilities; it reports notes receivable of $1,280,036 in total, including amounts due from CytoBioscience and Helomics-related balances. The company reported an accumulated deficit of approximately $58.9 million. Management estimated ongoing operating cash outflow at approximately $385,000 per month and disclosed $621,000 of accounts payable and accrued expenses.
Financing activities provided $3,300,678 in the first half, primarily from the January public offering and warrant exercises. Cash increased by $238,080 from year-end. Common shares outstanding were 12,089,446 at June 30 and 13,398,339 as of August 12, 2018.
Material changes and significant transactions
- General and administrative expense fell year over year, largely because 2017 included substantial stock-based compensation and consulting costs. Sales and marketing expense increased $726,000 for the first half as the company expanded its sales organization and market coverage; operations expense also increased.
- In January 2018, the company raised approximately $2.755 million gross through a public offering of 2.9 million units, each including common stock and warrant coverage, and subsequently received net proceeds from an underwriter over-allotment exercise.
- The June 28 Helomics merger agreement contemplated issuing Helomics holders 7.5 million Precision shares, in addition to 1.1 million shares previously issued for the initial investment. The deal was conditional, including on stockholder approvals and holders of at least 75% of Helomics’ $7.6 million notes agreeing to specified exchanges.
- If all Helomics noteholders agreed to exchange the full note balance, the filing estimated they could receive approximately 23.7 million Precision shares and warrants for 14.2 million additional shares at $1.00 per share. Other Helomics warrants and 900,000 Precision options for Helomics personnel were also contemplated. These potential securities make dilution a material consideration; the merger was not reported as completed in this filing.
Outlook, risks, contingencies and unusual items
Management stated that the company did not expect operating revenue to sustain operations in the near term and that substantial additional capital was needed. The filing concludes there is substantial doubt about the company’s ability to continue as a going concern for one year after issuance of the financial statements. Management warned that further financing might be unavailable or dilutive, and that the Helomics merger would significantly increase operating cash needs if completed. No specific revenue or earnings guidance was provided.
Management anticipated Helomics CRO and D-CHIP activity could generate revenue in the second half and reduce losses, but those offerings had not yet generated revenue in the reported period. The company also cited approximately $70,000 per month in TumorGenesis launch expenses. Helomics reported a six-month net loss of $4.285 million, including a one-time expense of approximately $1.154 million related to restructuring notes and warrants; the company recognized its share of Helomics’ losses.
Key risks include continued cash burn and reliance on financing, uncertain repayment of notes receivable, potential dilution, execution and integration risks for the proposed merger, Helomics’ ongoing losses, product-market acceptance, competition, regulatory requirements, and intellectual-property protection. The company disclosed that a stockholder-related legal matter was settled in July 2018 with no remaining liability. Management said disclosure controls were effective as of June 30, 2018 and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the filing is for Precision Therapeutics Inc. and not Axe Compute Inc.
- Track cash burn, available financing, and progress toward resolving the disclosed going-concern uncertainty.
- Verify the status and final terms of the Helomics merger, including noteholder participation, required approvals, assumed or exchanged debt, and total potential dilution.
- Assess whether Helomics’ CRO and D-CHIP services began generating revenue and whether losses narrowed as management anticipated.
- Reconcile reported share counts and outstanding options and warrants with later filings, and monitor STREAMWAY unit sales and gross-margin trends.
- Review collectability and repayment terms for the company’s notes receivable, including the CytoBioscience note and remaining Helomics-related balance.